The following has been copied from the comments to March 4, 2008. The rule of thumb is: if one person asks, twenty want to know! The question was:

I enjoy your blog but I still have a lot to learn. What do you mean by “crossed” in the Notes section of the volume highlights when you write “RBC crossed 15,000 at 19.07″ or “RBC crossed 100,000 at 23.20, then Nesbitt crossed 50,000 at the same price”? I assume you mean they bought the stock at that price but I am just not sure. Thks


A dealer “crosses” a trade when he acts for both the buyer and the seller. In institutional trading, it is very common for large trades not to be posted publicly – showing too much size might scare away counterparties, and lead to other traders playing traders’ games. 

There are other, better reasons: say, for instance that you are the investment manager for 100 clients holding varying numbers of shares. If you were to put it up publicly and only get a partial fill – say, 57,600 shares – you’ve got headaches splitting it up fairly and headaches having all those clients with tiny, virtually untradeable positions.

The best reason for doing this is if the order is contingent: maybe you want to sell PWF.PR.K to buy POW.PR.D and take out $0.45 on the switch. In that case, the dealer’s got two orders to fill. Maybe he can sell the PWF.PR.K, but can’t find any POW.PR.D for you (or he finds some, but he can’t put the deal together in such a way that you take out your $0.45). In that case, nothing will happen – and the next day, maybe you’ll call another dealer.

Whatever your reason, if you want to sell 100,000 shares of PWF.PR.K, you will not get your dealer to put this on the board for you. What you will do is ask him to find a buyer. He then checks his rolodex for people who have shown interest in PWF.PR.K in the past – or managers he’s talked to recently who have expressed a longing to purchase a high quality perpetual discount issue of any nature – and start dealing. Once he’s found a buyer who is willing to pay what you’re willing to sell for, he’s happy.

The exchange requires that this trade be recorded on their books. As long as the price is equal to or higher than the posted bid, and equal to or lower than the posted offer, then everything is OK and the trade gets filled as a cross.

A more specialized type of cross is when the dealer is acting for both the buyer and the seller – and so is the investment manager! This is an internal cross. The investment manager might have two funds: Acme Dividend Fund and Acme Preferred Share Fund. These two funds have differing cash flows, such that Dividend Fund needs to raise $2.5-million, and Preferred Fund needs to invest the same amount. In many cases – not all cases, but many cases – it makes sense according to the mandates of both funds that one sells to other. The investment manager gets the dealer to do it for him, the dealer ensures the price is fair, marks the trade as an “internal cross”, and Bob’s your uncle.

There are other specialized cross types as well.

One Response to “Crosses”

  1. […] not necessarily mean they earned good money on the crosses – some of them could have been internal crosses (with a single manager shuffling issues around his portfolios; not something that should cost a lot […]

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