Assiduous Reader prefhound writes in and says:
I have a question about two weird pref share trades that ocurred in my [REDACTED BY JH] account today.
I was buying something (after trying other prices) at an offer price of $22.40, so I put in a buy limit price of $22.40. I was filled at 22.39, but my trade volume and price does not show up in the daily quotes (high for this stock is given as 22.27; my volume and trade is not reported by the TSX and my fill made no difference to the offer price of 22.40 and number of lots).
Several hours later, I was selling something (again after trying higher prices) at a bid price of $21.58. I placed a limit sell at $21.58 but was filled at 21.59 (again one penny difference), but my trade volume and price do not show up again.
Is it possible that [REDACTED BY JH] is blindly internally matching bids and offers at a 1 cent difference to the market, then filling by a cross with me and not reporting the trade?
Alternatively, is this a “dark pool” or “rapid trading” issue?
I guess I am not supposed to be unhappy with internal crosses at 1 cent bonus to me, but I’m wondering if unreported trades don’t distort the market — my trade in the second stock is 5X the reported volume!
Your trade was almost certainly filled by an Alternative Trading System such as Alpha Trading Systems, which currently claims overall market share of 20% and challenges to become the primary market in some securities.
Now, it’s very nice to get filled a penny better than you expected – but there are issues for those among us who attempt to sell liquidity. If your limit order has been routed to the Toronto Stock Exchange, for example, and you look at only data feeds from the Exchange, you might be doing yourself out of a little money.
Say you put in a bid at 20.00 at a time when the Exchange is quoting the issue at 19.90-10. Immediatley afterwards, the Exchange will report the quote as 20.00-10 … so far, so good. But there could be ten bazillion market orders to sell coming down the pipe, all of them getting filled on Alpha at the Alpha bid of 20.01. Not only will you not get filled, but you won’t even know about these orders.
Alpha’s October Newsletter contains a discussion of their market data pricing strategy, and their website shows a list of authorized vendors of this data.
To get an idea of volumes and delayed quotes, you may wish to go to the sites of Alternative Trading Systems – I have added a category of links (in the right hand navigation panel) titled “Quotes (Delayed)” with some addresses. For example, the following data can be compiled for GWO.PR.H:
| Trading in GWO.PR.H 2009-10-28 |
|||
| Exchange | Range | Volume | Closing Quote |
| TMX | 19.58-70 | 5,566 | 19.52-66, 2×1 |
| Pure | 19.61-73 (Last 10 Trades) |
4,500 | None-19.84, 0x5 |
| Alpha | Last trade 2009-10-20 | ||
I can confirm what both prefhound and JH observe. In addition I find that order placed via my discount broker sometimes are overtaken by “trading robots”. That is, a buy order places at lets us say 1 cent above the highest order showing on level 2 quotes never makes the top of the list. A new smaller order appears at 1 cent above the order just placed. If you remove the order the smaller order also disappears.
I find that order placed via my discount broker sometimes are overtaken by “trading robots”.
I believe these are (mostly) algorithms entered by the market makers, in an attempt to encourage you to improve your order.
Yes, I agree James. The interesting thing is that my order never shows up before the new order!
Thank you James for bringing this up. I found my two trades on http://www.puretrading.ca (they were executed at two different brokers, which also show up).
Alpha ATS trades prefs very infrequently — perhaps monthly, but Pure is doing quite a bit of volume. I looked at today’s volume on Pure and TMX for 17 prefs. Pure accounted for zero to 86% of combined volume with TMX for these issues (Overall average 24%; Median 27.5% including 4 issues with zero Pure volume (1 TMX)). Based on this sample, prefs are more liquid than we think based on TMX volume alone (which is what Yahoo! Finance reports, for example). Indeed, the one penny advantage works best with illiquid stocks.
It seems to me that “liquidity providers” or pref arbitrageurs would be very attracted to the advantages of Pure.
I gather the ATS game is all about getting the recognized exchanges to decrease their trading and quote fees — a good competitive objective, no doubt. However, investors don’t need a 1 cent lower spread between competing SYSTEMS, they need the spread to narrow more by having all competitive purchasers and sellers see the SAME quotes and volume. There must be a theory of spreads vs volume that would say how much 25% more volume should narrow spreads if it is consolidated.
We’ll have to keep our eye on this one. For sure I will be consulting Pure once in a while — even with a 20-minute lag the quotes may prove interesting.
The question of who gets to supply liquidity is one thing that is addressed by pegged orders, which are not offered at present by any discount brokerage I know about.
Pure makes monthly summaries available in txt format … it might be fun to look for patterns in that data.
One of the prefs NA.PR.L had more volume on PURE 6,700 shares then on the TSX 1,810 shares. The pure volume indicator showed 6,200 shares but if you added the last trades they added up to 6,700. The ALPHA exchange did not register any pref trades of the one I follow for today’s date.
Do do these extra exchanges distort the data you have been collecting?
Do do these extra exchanges distort the data you have been collecting?
Volume figures will be distorted; I don’t think the integrity of the price files is significantly affected.
If the Toronto Exchange keeps losing ground, I will have to buy another data feed and consolidate it all. *sigh*
FYI only – today BMO.PR.K traded 4,000 shares on Pure Trading… only traded 1,000 shares on the TSX.
It was helpful to know the Pure Trading ask.
Thanks for the heads up.
This is the results for today from all 3 exchanges for some of the pref shares that I track.
Stock BMO.PR.J
Alpha 0
Pure 200
TSX 9,280
Total 9,480
CCS.PR.C
0
400
8,000
8,400
HSB.PR.E
2,200
500
11,218
13,918
MFC.PR.C
0
11,000
4,450
15,450
NA.PR.L
0
1,000
700
1,700
RY.PR.E
0
4,000
27,875
31,875
RY.PR.G
0
2,400
12,000
14,400
Lower volume on Alpha for sure. I found Pure was quite slow to show quotes today — so opening is not a big deal there.
Using GAndreone’s data together with mine, these samples suggest 3.5% of sample pref volume on Alpha (But based on only one of 7 issues actually trading) and 20% on Pure (20 of 24 issues trading) with 76.5% on TMX (23 of 24).
I suggest we look at this again in 6 months to see what the momentum is like.
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