Hello, Yesterday, I got a fill on an extremely illiquid contract. It was the first time I traded this contract and I was leaning on the MM( improving the current B/A spread by a few ticks ). After seeing how wide the spread was at the time, I realized that my trade was outside the "non reviewable range", so I was concerned it should be busted or adjusted. Apparently nothing happened. I would like to know if anybody ever had a trade adjustment or cancellation for trading outside no bust range , and more importantly if there should be some penalties from the exchanges for doing it. I mean ... The MM was there before me and quoting wider( and he has been there for a while, trading multiple contracts every day )but I am paranoid when it comes to exchange penalties. I wonder if it can be considered something that is not a " good faith bid and offer " The rulebook says: " a. Futures Contracts If the GCC determines that a trade price is outside the Non-Reviewable Range for a futures contract (including futures spreads), the trade price shall be adjusted to a price that equals the fair value market price for that contract at the time the trade under review occurred, plus or minus the Non-Reviewable Range. In the event there are multiple parties, prices and/or contracts involved in the transactions at issue, the GCC has the authority, but not the obligation, to cancel rather than price adjust such transactions. The GCC will issue an alert regarding its decision. " So there are no explicit penalties in the rulebook and I am not scared of adjustments, but if somebody has more experience than me on this... Thanks a lot.
As long as there weren't exigent market circumstances during the trade, it's highly likely that it will stand. As an example, when IB auto-liquidates customers for being over margin, some trades are very far from fair market value - and they stand. You may have an option that has a fair value of $10, but the bid/ask is $2/$20 at the moment that IB's computer fires the order off. The guy who just bought a $10 contract for $2 is happy - the customer not so much. I understand your question though - that guy who now owns at $2 can get screwed if he sells at $10, then the market moves against him...then he gets notified later that the original trade was busted. Hopefully your methodology involves holding the contracts for a few days in case it does get busted. It's very difficult to know what was happening on the other side of your trade, but unless you saw something in the financial media about an issue, then it's probably going to stand. It's part of the risk of getting a good fill.
Thanks Ktm, Indeed I am still holding the contract and I think it will stand. My fill wasn't caused by a weird event, it's just the same kind of fills that the MM is having every day. It's just that it's the first time I see an MM quoting larger spreads than the no bust range, and I don't feel good "joining" him. I always think there are some unwritten rule... As I am not really part of the club, I can be fined whereas the MM will walk away without problems...I am not really scared by adjustments or busts, but more by possible litigations, fines, disciplinary actions by GCC... However, I am not really trying to provide liquidity every day on this contract. It was a one time occurence...
Good luck with it! I think you are definitely on solid ground. Anything that's illiquid benefits from having additional parties post legitimate fillable orders, no matter the price...the regulators all seem to welcome that. In the old days, getting inside the bid/ask of illiquid stuff and scalping was a popular way to make money Let us know how everything plays out.
Penalties for improving the inside market? That's absurd. If you're retail you can quote whatever the hell you want as long as you abide by messaging ratios. GCC is very fair in my experience, worst case if the counterparty whines it's adjusted to last trade +/- no bust. Now please do tell what you were trading without some rodent re-pennying you within 1ms of you bettering the quote.