I've often heard that trades get counted twice on the Nasdaq. I have been trading for a little while using a Level II service, and have noticed that sometimes this appears to be true and sometimes not. Specifically, sometimes I'll put an order in for let's say 1900 shares, and within the minute on the print I'll see two 19's trade in a row. Other times, there will be only one. Can someone enlighten me as to what's going on? Thx in advance
To understand why some NASDAQ trades are "double counted" and some aren't, it may be useful to go back to the bad old days, specifically to times when (1) the new order handling rules (phased in during 1997) were not yet in effect and (2) ECNs such as Island, Archipelago etc. were not available to the typical investor (though Instinet and Selectnet were potentially available to institutions and/or market makers).
Prior to these relatively recent changes, a retail brokerage customer typically bought or sold NASDAQ stock only through a market maker. Market makers had no obligation to display customer limit orders along with their own. So, for example, if one wanted to buy 100 shares of ABCD, one could just as today, submit a limit order to buy the shares at that price. Unlike today, if the bid x ask was 10 x 10 1/4, your order would not be displayed and, under normal circumstances would not be executed until a sale by a market maker to you at $10 was advantageous to the market maker - for example when the bid x ask had moved to 9 3/4 x 10. To obtain those 100 shares sold to you, the marketmaker would have at some time (before or after the sale to you) engaged in a purchase of 100 shares from someone. If that someone (ultimately) was a retail customer, then what amounts, in effect, to a sale of 100 ABCD shares by the retail customer to you would actually yield two 100 share transactions, hence the double counting.
With the introduction of the new NASDAQ order handling rules, direct trades between two parties, both of whom are not market makers, are relatively common. ECNs facilitate this type of trading.
Turning to your specific question, one possible explanation (assuming for the sake of definiteness that you were buying 1900 shares) is that the two 19's in a row were perhaps ones where someone (almost certainly either a market maker or a day trader) located 1900 shares that could be sold to you at a profit (of course, it could also have been a coincidence). If your order was a market order, locating the shares would be fairly simple assuming the stock was not thinly traded. Even if it was a limit order such as a "buy at the bid" it may still have been possible because of the absence of a NASDAQ central order book (see the links in #reply-10894325 for more details). |
