stock selling below bid?

yugo

I have recently had a partial fill on a limit buy order. A few minutes later the same stock sold at a lower price than my limit (my order still being open). I called Fido and was told that "once a market maker has partially filled an order, it can move on to the next order and fill that - even at a lower price."

When I asked whether I correctly understood that the same logic would apply to a hypothetical scenario where a market maker would be free to give me a partial fill on an order @ $100 and then sell a block within the amount still left on my order to a "favored client" @ $1 - the fellow on the trading desk said that this was exactly right and that the market maker would be free to do so... Any thoughts on whether this makes sense from a market and/or regulatory standpoint?

Crash

certainly stinky. Something's fishy in Denmark. They always have a plausible, perfectly legal explanation. Uncle Chucky is not perfect, either. But given what you explained, I'd be furious.

msf

Suppose an "all or none" limit order comes in to buy 100 shares at $50. Then you place a limit order to buy 130 shares at $50.

30 shares come on the market that meet your $50 offer price. Your order is partially filled at $50, leaving a partial order open for 100 shares at $50. There is still an earlier placed order for 100 shares at $50.

Now 100 shares come on the market with an offered price of $49.99. Who gets those 100 shares? The earlier all-or-none order or your partially filled order that you placed later?

I don't know the answer to that, but ISTM that the earlier order should take precedence over yours.

yogibearbull

I had a related problem some years ago. My limit order wasn't filled but the consolidated tape showed a low price that was lower than my limit price. Fido told me that it sent the order to a particular exchange but the consolidated tape has data from all US exchanges. It said that my limit order couldn't be filled on the exchange it was sent to and that nothing could be done.

gman57

It's a magic black box and no one actually knows how it works. ;^) You pays your money and you takes your chances.

yugo

@Crash Yeah, my feeling exactly... Alas, Chucky charges for these orders while Fido does not. Hopefully, this one trade won't gobble up all the $$ I've saved with Fido so far.

yugo

@msf In your scenario it makes a bit more sense, but in my case it was more like I had a limit for 200 shares @ $50, got filled for 100, and the next trade came in for 50 shares @ $49.90. So my standing order could have absorbed the entire block with some room + the price difference was a little bit more appreciable... Would you still feel the same about the hypothetical $100/$1 split I discussed with the trading rep?

Crash

yugo said:

@Crash Yeah, my feeling exactly... Alas, Chucky charges for these orders while Fido does not. Hopefully, this one trade won't gobble up all the $$ I've saved with Fido so far.

By the same token, Chucky will reinvest your dividends for you, if instructed. But I found out that there's nothing either strategic nor tactical, when it comes to the timing and price at which the div gets reinvested. It's all a matter of THEIR convenience. I do not trust Chucky with that task anymore. (Of course, mutual funds are a different matter.)

yugo

@yogibearbull I guess I would have minded this less if the trading was heavy so the next order was a fraction of a second later. But in this case, the next order posted a few minutes later, so - with today's technology - I would have assumed that the quotations from different exchanges would have had the time to sync...

BaluBalu

"I don't know the answer to that, but ISTM that the earlier order should take precedence over yours."

You got it and that is only one example of the ordering rules that may give us the illusion of chaos because the entire picture is not visible to us.

Sven

Perhaps this is one of the reason some investors prefer trading mutual funds instead of ETFs and individual stocks. You place the order (buy or sell), and you get the NAV price when market close.

msf

yugo said:

@msf In your scenario it makes a bit more sense, but in my case it was more like I had a limit for 200 shares @ $50, got filled for 100, and the next trade came in for 50 shares @ $49.90. So my standing order could have absorbed the entire block with some room + the price difference was a little bit more appreciable...

It's not hard to construct sequences that could account for this. For example, suppose the security is trading at $50.10 when someone enters a limit order to buy 50 shares @ $49.90. Then you enter your limit order to buy 200@50. No sell orders at market price come in.

The next sell order entered is a limit order of 100@$50. Yours is the only open buy order that will meet that price, so you get the 100 shares. You have a remaining order to buy 100@$50.

The next sell entered is a limit order of 50@$49.90. Perhaps the seller entered a price lower than what you were offering because they were afraid that your offer would be snatched by some other seller swooping in and wanted to make sure their sale went through. Perhaps the seller didn't look at the depth of book and just extrapolated the sale price ($50.10, then $50.00, then $40.90). In the end, the actual reason why the seller placed the limit order at $49.90 doesn't matter.

There are two open buy orders that could purchase those 50 shares at $49.90. First one (not you) wins.