It's clear to me that a specialist/MM are able to identify the order comes from a retail trader. It also seems to me they know which broker is sending them the order. But are they also to identify that the same customer trying to e.g. "sell-to-close" is the one who earlier on "bought-to-open" 5k shares of that stock?
Let me give you this analogy. When you first learn to play the piano, everything seems so complex. Over the course of time and many years, your hands seem to fly over the piano at rapid pace. You can read the sheetmusic with ease. Then you play in concert with a 100 other people. People watch on and wonder, oh wow, how in the world do they do that. Its simple. Over time, you learn how to do this seemingly complex task. The specialists do their job in the same way. They see your order, they know all the tricks. You ask how can they sort through so many orders and know what to do next. Easy, these guys are the piano players. Their hands fly screwing you over from one trade to the next. All hail the specialist! The king of the trade. I am hoping that the computer will overthrow your reign and to hell you shall go!
read an article the other day saying some of the top specialists were doing 4 million keystrokes a day mathcing up orders. that's almost 9k keystrokes a minute. unless, you're one of the biggest traders in that stock, i doubt they have time to notice.
Once I was barred from trading QQQ. My broker told me that the specialist wouldn't take my order anymore. So I guess they knew.
To do such a quantity would require highly sophisticated programming. I would imagine the program categorizes hundreds or thousands of different scenarios where statistics show traders are vulnerable and tend to lose money, and they can quickly make the necessary keystrokes one after the other, with one button.
In less liquid stocks... the Specialist knows exactly which account you are. I don't know about the QQQ story... But I have been jousting every day with the same Specialists for 13 years... And used to be a US broker-dealer Principal with 4-5 exams... And I do not believe the NYSE has the right to "bar" me. Even when I have bent regulations by "high closing" or whatever... There is a process for that... If received letters from NYSE Surveillance... But it never got to the next step which is Kangaroo Court. But in the Third Market... pretty much anything is possible I guess. Also... as we move through 2006... The markets are becoming increasing fragmented... Whereas one year ago 98% of IB SMART executions would have been NYSE for NYSE-listed... Today out of 255 trades only 89% were NYSE executed... And these are low volume stocks with only real liquidity on NYSE... So I would expect that number to slowly keep sinking over the medium term. What ever is happening at the NYSE and ECNs... My volume seems to be drifting up... So I think Real Quants are going to benefit from more electronic markets.
During the summer I was trying to get some CAL puts and I noticed that everytime I hit preview order the spread went from .05 to .10 and my order would not execute. I played with them for a few days and entered bogus orders just to see what the MM's would. Once I hit preview order and the spread went from .05 to .20 in seconds with the price making a move. So I would say yes they see it and adjust accordingly.
It is typically done in a low volume stock. You send a small 200-300 shared order roughly 30-60 seconds before closing... And you can usually close the stock higher by $0.05 or so. If you have a 5,000 share position... This is very helpful... You might get $0.05 more the next day on your whole position. But "high closing" is market manipulation and specifically prohibited by a specific regulation... And it only works for lower volume stocks... But people do it all the time... because it is very hard to ** prove **. The only way to prove it... is to show a steady pattern of high closing in a specific stock... Doing it once a week cannot prove guilt. Also... Mathematically "high closing" is an extremely marginal strategy... And probably not worth it for anything other than penny stocks.