Every serious student to equities trading should be assigned this thread to read. Thanks Fellah's for the most excellent information. ES
yes I agree but I also disagree that it was some random off-market trade. Don't you find it curious that just when one puts in a bid at 17.10 some other trade at 17.1001 crosses the tape. I do not care what terminology others attach to it, but to me its a clear sub-penny trade. Please explain what else it is? Someone traded 10 minutes earlier at 0.0001 just above where OP bid?
I am not trying to protect the current market structure. I am just saying that in this particular case there is no evil hft using some secret order type on nasdaq evolved. You think about off market trade as something when you and I have lunch, decide to to "exchanged goodies" shake hands and then walk to the office to reports the trade 15 minutes latter. Yes, that could have been a spirit of this rule. However in practice OP is sitting on the bid at Nasdaq, someone wants to trade with him, but that order never reaches to Nasdaq but rather gets 1/1000 cent of improvement. It's being internalized and the trade is reported to TRF very fast.
OP clearly was sub pennied by internalized order flow from a retail seller. Eg, a retail Schwab customer enters sell order and Schwab scoops it up for .0001 better than best bid (OP). This happens all day, every day. I'm a believer that the playing field should be the same for all market participants. If Schwab can do it, then we should be able to.
ok, I am with you, so lets play this all the way through. OP (A), someone else (B) wants to trade with him at A's bid, C appears and lifts B's offer at 1/1000 a cent improvement over A's bid. If indeed C is an internal counterparty to B (trading within the same entity) then I agree with you, otherwise it cant be a subpenny off-exchange trade.
yep, agreed this is possible, same trading entity. Just out of curiosity, in the US, the order that in your example Schwab put in at 1/1000 cent improvement over natl best bid, is not allowed to hit the outside market, correct? This means they just cross it up internally, the Schwab bid is not even a real order, correct? IB does that all the time in fx markets, they call it price improvements, indeed it is but its telling when IB steps in and when not.
Correct, they never really enter an order...it's just an immediate internal fill. Their algo determines if they internalize or route out, and how much to internalize if so.