Did you know that Brown & Co. sells order flow and has multiple complaints every day about market orders taking forever to execute in fast markets? From Street.com "Technician's Take" 11/28/98:
Don Smith's experience with nonexecution of Dell (DELL:Nasdaq) is very common now. Payment for order flow MMs are manipulating their autoexecute systems to get control of online traders and increase slippage. I wrote the following to Theresa Carey, an old friend of mine at Barron's. She picked up the story in the 8/31 issue.
Although my experience was with Brown, I've heard similar stories about almost discounter that sells order flow:
"I'm a full-time trader now and want to pass along a very disturbing trend if it turns out to be widespread. Using the Internet interface for Brown and Co., my broker, I had been getting instant executions on the 4 stocks I trade exclusively with 1,000-share MARKET orders: Intel (INTC:Nasdaq), Microsoft (MSFT:Nasdaq), Cisco (CSCO:Nasdaq) and DELL. Yesterday, my first four market orders for INTC did not execute for 3-5 minutes for both the buy and the sell (my holding period is only 10-15 minutes). They did so only when the issue ticked against my position, resulting in slippage in each case. Then I placed a 1,000-share market order for MSFT. It did not execute for over 3 minutes and I pulled the order.
I called Brown in Boston and, after a customer service rep clearly had no idea what I was talking about, spoke directly with one of their traders. Starting about a month ago, their market makers began pulling down their automated execution systems whenever they alleged it was a "fast" market and forced all these online orders through their manual entry. They're forced into a queue the MMs can control whenever they are about to move price.
Clearly there's no excuse for the nonexecution of a market order on the most liquid stock in Nasdaq. This has also grave implications for manipulation. Volume yesterday on these stocks was well below their average this year. Every delayed execution I had resulted in slippage from the bid/ask under display for at least 90 seconds after I placed the order. This appears to be a new implied right to slippage, perhaps as "revenge" for the loss of profit margin on their transactions and the impact of instant entry systems. Also they know when they want to move a stock. This gives them the means to manipulate the tape rather than allowing liquidity and demand move the market.
Brown's local manager said he is getting 40-50 complaint calls a day from his customers on this issue. He spends a good amount of time now trying to renegotiate executions with their MMs. My concern is this is a new practice MMs have decided to institute nationwide to counter the execution speed brought by direct Internet and ECN interfaces."
Alan Farley |
