John,
The reason your order is being rejected is that it locks/crosses the market.
The following is an email reply from Eric Patterson which addresses your question fully.
Re: ISLD. As you said, there is quite a large list of limit order bids
and offers on the ISLD book. If you place an ISLD order, four things can
happen:
1) Complete fill: If any existing limit orders are posted on ISLD that are
within your price limits, you will be filled by these posted orders.
Example: DELL is trading at 62 bid by 62 1/16 ask on Nasdaq. You place
an ISLD order to buy 2000 DELL at 62 1/4. The ISLD order book has 300
offered at 62 1/16, 500 offered at 62 3/32, 3000 offered at 62 1/8, and
2000 offered at 62 1/4. Your entire order will be filled as follows: 300
at 62 1/16, 500 at 62 3/32 and the remaining 1200 at 62 1/8.
2) Partial fill: Assume the same information from the above example,
except you order 2000 shares at 62 3/32. Now, your order will be partially
filled as follows: 300 at 62 1/16, and 500 at 62 3/32. Your remaining
1200 shares cannot be filled because there are no opposing matching orders.
Also, the remaining orders cannot be posted on Nasdaq, since it would
cross the market (i.e. you would be attempting to place a bid above the
inside offer price; Note: a locked market would also not be allowed,
which would be attempted to post on Nasdaq a bid price which equals the
inside ask price).
3) No Fill: If there are no existing ISLD orders on the book that matches
with your order, and your order cannot be posted on Nasdaq because it will
lock or cross the market, then your order will automatically be cancelled
and returned to you. Example: DELL is trading at 62 bid by 62 1/16 ask on
Nasdaq. You place an ISLD order to buy 2000 DELL at 62 1/16. The ISLD
order book has 500 offered at 62 3/32, 3000 offered at 62 1/8, and 2000
offered at 62 1/4. There are no existing ISLD offers at or below your bid.
Therefore, you currently cannot be filled from ISLD. If posted on Nasdaq,
your order would lock the market in DELL at 62 1/16 bid and 62 1/16
offered. Therefore, the ISLD system will not allow you to do that and your
order will be returned unfilled. For more information, see Chapter 2 of
the Nasdaq Traders Manual:
nasdaqtrader.com.
ual/tradermanual.stm
4) Order posed on ISLD: If your bid order is lower than the inside offer,
your order will be posted on the ISLD book and the best bid/offer price on
the ISLD book will be posted on Nasdaq. |
