July 15, 2010
I am writing today to show a problem I see with the exchanges not posting clearly defined rules for erroneous trades. It is also unacceptable that the exchanges can threaten to impose fines on broker dealers if the broker files for a ruling on a trade. This is what happened to me today. I am a trader whose firm clears through Goldman Sachs. I entered the wrong price on a stock to sell some shares and was executed. The stock ticker is LSBX. It was announced that this stock was going to get bought out for $21.00 a share and I unintentionally sold $17.42 and $19.84 a share. I think anyone reading this will agree that nobody would intend to do this and that makes the trade erroneous. I called Goldman Sachs to ask that they file to have the trade busted. They refused to file for me and I was stunned. They told me they no longer file for a trade to be broken under these circumstances unless the trade was 20% or more away from the last price. Again I am stunned and confused because the exchange where the trade occurred was ARCA, and the rules for a clearly erroneous trade posted on ARCAs website states that the erroneous trade numerical guidelines are first off just that "guidelines" and second, that these guidelines exist to protect investors and maintain an orderly market. Here is exactly what it says:
"NYSE Arca may consider additional factors to determine whether an execution is clearly erroneous. These factors include, but are not limited to, system malfunctions or disruptions, volume and volatility for the security, derivative securities products that correspond to greater than 100% in the direction of a tracking index, news released for the security, whether trading in the security was recently halted/resumed, whether the security is an IPO, whether the security was subject to a stock-split, reorganization, or other corporate action, overall market conditions, Opening and Late Session executions, validity of the consolidated tapes trades and quotes, consideration of primary market indications, and executions inconsistent with the trading pattern in the stock. Each additional factor shall be considered with a view toward maintaining a fair and orderly market, the protection of investors and the public interest."
and
"Unusual Circumstances
In Unusual circumstances, NYSE Arca may use – while attempting to maintain a fair and orderly market, protect investors and public interest – a Reference Price other than the consolidated last sale. Unusual Circumstances can include periods of extreme market volatility, sustained illiquidity, or widespread system issues. Other Reference Prices may include the consolidated inside price, the consolidated opening price, the consolidated prior close, or the consolidated last sale prior to a series of executions."
I think after reading that it is clear that this trade meets many of those criteria to be erroneous. First off the stock had just resumed trading from being halted only 10 minutes before these executions. This was after the core session had closed so there was clearly a lack of liquidity and there was certainly news on the stock. Even with all of these reasons this trade was erroneous Goldman Sachs would not file on my behalf because as they told me "We are afraid that the exchange will fine us because they (the exchange) recently changed their (the exchange) policy and it is now a firm rule that the trade must be a minimum of 20% away from the last trade". I said their website says it is a guideline to which the Goldman rep Pete then replied "that is no longer the case it is now a firm rule". So I ask the SEC how can it be that an exchange can have inaccurate information posted on their website that directly affects the investing public and threaten my broker dealer with a fine to the point my broker dealer no longer is representing my best interest? I also find it unacceptable that I am being told by Goldman Sachs rep and management that the exchange wont even look at a trade unless it was 20% away from the last print if the stock is less than $25.00 no matter what. "NO MATTER WHAT". How can this be legitimate when the new circuit breakers are 10%. I am not suggesting that they break every trade over 10% but in cases like this example the exchange should at least review the trade and dont threaten broker dealers like a friggin mob boss. Is it not a broker dealers duty to look after the best interest of thier clients? How can they perform this duty when the exchange is allowed to fine them for asking for a trade to be reviewed that meets their own definition of erroneous? Please institute regulations that are the same for all exchanges and provide clear rules that are not left open to interpretation so those that have taken the Jeffrey Skilling class on ethics have less tools at their disposal. Here are all of the trades that occurred that day in the stock and a link to ARCAs current posted Clearly Erroneous Execution Policy PDF:
Ticker: LSBX
Date: 07/15/2010
16:00:00 14.09 0 BSE
16:00:00 14.42 0 K
16:00:00 14.15 0 FINRA TRF
16:00:00 13.83 0 NSDQ
16:00:00 13.83 0 PCSE
16:00:00 14.42 0 BATS
16:00:00 14.15 0 J
6:30:00 14.49 10 NSDQ
12:45:22 14.15 1 FINRA TRF
12:55:05 14.15 1 NSDQ
12:58:34 14.12 1 NSDQ
12:58:34 14.12 3 NSDQ
13:45:00 19.86 1 NSDQ
13:55:00 17.52 1 PCSE
13:55:00 17.52 2 PCSE
13:55:00 19.51 1 NSDQ
http://www.nyse.com/pdfs/CEE_Notice.pdf