yeah chris, before your order would have had some sort of price improvement. Today its a different story. NYSE has lost a ton of my business because of scenarios just like this. Have fun,

jt

by jt on March 6, 2007 1:13 PM

A Hybrid-Building Colleague points out that quotes that disappear in less than a second might have actually traded. Also: so-called flickering quotes do not get quote credits under the new Reg. NMS market data allocation formula going into effect on April 1.

by Ray Pellecchia on March 6, 2007 3:51 PM

There is a rule that says you CANNOT place orders for the sake of manipulating markets.

The definition from www.sec.gov website is as follows...Spoofing occurs when a person trading in the stock markets uses a displayed limit order to manipulate prices,and thereby obtains an improper trading advantage.

If you read the SEC case history of complaints against individuals who were "spoofers"... Many of them were censured and/or banned from the industry for doing basically the same stuff that goes on everyday on the NYSE.

Can you clarify if what is going on now in the marketplace is illegal, or is "spoofing" an accepted practice in the marketplace ?

Thanks,

David

by David on March 6, 2007 5:46 PM

David -- Clearly, as you state, manipulation and "spoofing" are violations of NYSE rules and/or federal securities laws.

I have no way of knowing whether such violations are taking place. Determining that would take investigation and prosecution by NYSE Regulation and/or the SEC.

All I can suggest is reporting any suspected violations, or examples of what you're talking about, to the regulators.

Thanks for writing, David.

by Ray Pellecchia on March 6, 2007 11:05 PM

Ray,

I have strong doubts about your claim that, "Limit orders account for about 97 percent of the orders we receive." Where are you getting that stat from? Having worked around traders in this industry for 8 years I can say that everyone I've ever traded with use Market and Stop orders almost exclusively.

Just wondering because that stat sounds off, at least in my experience.

Thanks, Chris

by Chris on March 7, 2007 8:37 AM

Ray,
You have mentioned a number of times in this blog that ~97% of orders on the nyse are limit orders. I think that number gives an artificially high picture due to the number of limit orders that are subsequently canceled. Do you have any stats on the percentage of *executed* orders that are market vs limit? If you did, I think the numbers would look quite different (at least prior to the coming of hybrid) and you would see that a lot of your customers (or former customers) were market order customers.

Thanks.

by Steve on March 7, 2007 10:19 AM

Chris, Steve --

I double-checked the 97 percent, and it's correct. Of the orders we receive, that's the percentage that are limit orders.

We determine that through our own research on the types of orders: every one is flagged as a market or limit before arrival.

I also asked about the share volume that is actually executed, and that is indeed different, as you would expect.

Of the shares executed on NYSE, 80.5 percent are accounted for by limit orders.

I hope that sheds some light on this. Thanks for writing!

by Ray Pellecchia on March 7, 2007 4:58 PM

Spoofing is rampant on the NYSE. It's done with trading bots and across many stocks. If what I have personally observed as a small-volume but regular trader is correct, it must happens many thousands times a day and anyone willing to investigate it (SEC) would have not trouble at all observing and recording instances of the problem. I'm not talking about "flashing" quotes here, but quotes that are "walked" up or down--but not honored--when they are hit.

by Giani on March 7, 2007 7:35 PM

Ray,

Are Limit-NX considered "limit" orders? How about "Stop" orders?

Thanks, Chris

by Chris on March 8, 2007 8:31 AM

Chris --

Limit-NX orders are categorized as limit orders; stop orders are considered market orders.

Thanks again!

by Ray Pellecchia on March 8, 2007 9:39 AM

Hi Ray,

Thanks for answering my question regarding the percentage of executed orders that are limit orders.

Given the numbers above, consider the following:

1) For every 100 orders the exchange *receives*, 97 are limit orders and 3 are market orders. Since all market orders are executed, and since (from above) 20% of executed orders are market orders, it follows that 15 of our original 100 orders will execute: 3 market orders and 12 limit orders.

2) Now imagine the exchange receives 200 orders (194 limit orders, and 6 market orders). From (1), we know this will result in 15 trades, since each trade requires two executed orders, one on each side. Since in the Hybrid Market two market orders won't match, it follows that 40% (6/15) of executions involve market orders.

The point of this somewhat long discursion is to demonstrate the (otherwise somewhat understated) importance of market orders in the Hybrid Market.

As the comments on this blog and elsewhere have made clear, market orders have suffered disproportionately on Hybrid due to the disappearance of the specialists and the lack of reserve quoting ability (for anyone but floor brokers). Based on the Exchange's own numbers, market orders are involved in nearly half of the volume on Hybrid.

The NYSE needs to take these concerns seriously.

by Steve on March 8, 2007 2:23 PM

Steve,

Excellent work! That 97% number is very suspect.

I've been watching stocks very closely since March 5th when the last phase went into effect. Ray, you stated a number of times that with Phase IV "price improvements" would become more common.

I'm not surprised, but I still don't see an improvement in trading. Stocks are still whipsawing around on very light volume.

Is this never going to change, Ray? I mean, is this it?

by Chris on March 13, 2007 10:15 AM

I hear this a lot about the spoofing.

Thing is, I RARELY miss getting filled using limit orders. If the price is there, and I go to take it , I get the shares 99% of the time.

I wonder if these folks are using Etrade or some other slow execution.

With direct access, I have not experienced this problem personally.

And I NEVER use market orders.

by MrTrader on March 16, 2007 12:16 AM

A limit order (sell for example) with a limit several price points BELOW the current inside will ACT as a market order but be listed as a limti order. Why on earth any of you put yourselves at someone else's mercy via makret orders is remarkable (and my opportunity) If you find yourself using limit orders to hit bids and always missing the bid (traded ahead) then you have a very fast stock on your hands and, inmy experience that doesn't happen that often. Additionally, there's no such thing as "honor" a quote in NYSE land since you are at the mercy of the NYSE system if you try and cancel a legit order before it's filled. You cannot choose to simply "not honor" you quote. That was the old NASDAQ way years ago.

by Mike on March 16, 2007 9:20 AM

Steve --

Please see my response here. Thanks.

by Ray Pellecchia on March 23, 2007 5:26 PM