SEC....i am not trying to bust you, but where is your rule coming from? stocks, correct?

How does this happen, then?

http://www.knight.com/ourFirm/orderHandl....


"Election of Stop Orders:
Sell Stop Orders and Sell Stop Limit Orders are “elected” when the National Best Bid meets or falls below the stop price. (If, when the order is received, the stop price is equal to the National Best Bid, the order is deemed “elected” immediately upon its receipt.)"


Any SEA (SEC) ruling would apply to exchange (meaning specialist-brokered or principal) transactions in this case, not to ECNs. When you assent to electronic execution, that is included. You assent to the rules of the stop-book runner, Citadel is the biggest in N. Am, Knight is another.

Electronically executed stocks. I hate to say "trust me" on this, but I've been though this a hundred times. It's the rules for 99.99% of "Stocks" and other stuff out there.

National Best Bid Pat.

Wow! I read that...frightening. Not at all what professional traders expect when they insert a sell stop order. Amazed that a firm like Knight can get away with that. I'll post the SEC language in a bit. Do other bucket shops do this as well?

Sure, but that's just an agglomeration of ECN's anyway. If a book runner has a proprietary bid in their pocket, nothing prevents them from executing that order when elected. My point is that nobody is going to willfully execute a non-executable order. In the example above they demonstrated a market that was wide enough to execute, and bang away they did. Though caveat- if he had called in the next couple of minutes I'd be surprised if they didn't bust the trade.

TB- nobody is 'getting away' with anything, that's just the rules and the law (meaning you stipulated it's legitimacy by agreeing to it). I don't like it either, but I take measure where possible to not get blown out. Stop orders are basically an accomodation of the broker. And rarely, an exchange.


I can't find Citadels order-election process, but I'm not surprised :) I'll hunt around E*T, TN, Schwab when I get a moment...

sell stop order is placed below the current market and is elected only when the market trades at or below, or is offered at or below, the stop price. Once the stop order is elected, the order is treated like a market order and will be filled at the best possible price.

For now....

For a trade to take place NBBO must hit the price at which execution happens (that is, there must be someone willing to buy and someone willing to sell at that price.) So that's correct - if you have a stop and NBBO hits it, the stop is elected and your order becomes a market order. It then fills as per the rules for the type of order that it is.

When I got gang*****d by E*Trade it was a bit different - they elected me on a quote that was a dime WIDE of NBBO. They ate it too. It happened twice in one trading day on the same issue, they broke both trades as I have T&S with the order book at the time captured, and shortly thereafter things got dicey with my belief they were going to survive and I moved the account.

How quickly did you call?

I'll add that every time I got adjusted, I had traded with Cit....

TB, it's been like that for a hundred years in futures, wouldn't expect it to change now.

Just read a bunch of 'agreements' from various retail brokers. They all seem to use your language. In the pro world, it better TRADE at your limit, or they better not execute you.

Key point is "bid/ask" which are cues and do not represent the stocks value. The broker above moves the stop order to the market queue based on a BID queue not on a completed transaction. For instance, on a stock XYZ closing at $20 the day before with a stop-loss order at $19 and which trades on low volume, the bid/ask at the open can be skewed in that at the open all the market interest is not represented. The bid queue shows $18.5, the market opens, being the highest bid the broker triggers the stop-loss and moves the order to the market, for which there has not even been a trade, an agreed value. The stock trades for $20.50, never even trading at or below the stop-loss order. Brokers who use the BID queue as a trigger violate the stop-loss definition as per the SEC who define it as a trade. The impetus for the broker definition is commissions.


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From the SEC:

Stop Order
A stop order, also referred to as a stop-loss order, is an order to buy or sell a stock once the price of the stock reaches a specified price, known as the stop price. When the stop price is reached, a stop order becomes a market order. A buy stop order is entered at a stop price above the current market price. Investors generally use a buy stop order to limit a loss or to protect a profit on a stock that they have sold short. A sell stop order is entered at a stop price below the current market price. Investors generally use a sell stop order to limit a loss or to protect a profit on a stock that they own.

To understand where and how an order you place with your broker is executed, you should read Trade Execution: What Every Investor Should Know. For more information on the different types of orders you can place when you buy or sell a stock, please read our investor bulletin “Trading Basics”.

Pat: Immediately. They were dead wrong on it - the book as is usual does contain bids and offers that are wide of the current market - it always does. They elected me twice on an ECN that was nowhere NEAR the market; we had a nice little*****ing match both times but they broke the trades. It was a fairly decent sized order too.

BTW TOS has NEVER done this since I started using them. Neither has Schwab.

Gen- yeah agree, I saw the execution and did a big WTF?!?

I don't actively trade at Schwab (Wife's IRA). I do trade through Power E*T Pro for some low-turnover stuff, and for that I'm pretty careful. I like E*T's access to foreign markets on a single platform, and their ability to move USD across currencies with the click of a mouse. I alos like being able to specify my ECN in the pre-market.

And yes, tb- any "pro" that bangs me out would get an earful. But I've never really had an issue with any professional electronic execution platform I've used (primarily Lightspeed/TN right now).

Ditto here Pat.....never had the problem (Redi), but can see where these guys lurk for stuff like this. Maybe only happens a thousand times a day, but that is a thousand more orders for them to charge commish. It all adds up.

To the original poster: you're screwed if your agreement has that NBBO language in it. Truly, i am stunned, but these guys will do anything to generate commish. That's what brokers do.