November 29, 2010
It is my understanding that this proposal basically formalizes that any firm/exchange that agrees to accept stop or stop limit orders can ultimately choose how they want to view a "triggering" event for the stop order - either via a published quote (which can literally last milliseconds) at the stop price, or a transaction at the stop price - but which ever method they decide to use, they have to use it consistently. Financial advisors who have no control over how their orders are routed have no way of knowing which method will be used.
Investors that use stop orders are largely only aware of the transaction triggering event, unless they have already been "burned." Investors will have a legitimate complaint when their stock is "stopped out" due to a quote and there is no evidence of the stock ever having traded at that price on the day of their trade. Then, as always, it will be up to the front-line financial advisors to deal with the mess.
Michael S. Nichols, Ph.D.
Principal / Financial Advisor
Cutter Advisors Group