Dear Jay:
you have 1000 AMZN that you bought at 125.
The level II window is : 125 bid by 125 1/8 ask
Amzn anounces that they are having problems, the price starts falling.
You want to get out because you know the price would be down to 50 in no time
The Island book look like this
Bid **** Ask
$120 300 **** $122 600
$118 500 **** $123 1000
117 1/4 600 **** $124 5000
You have 1000 shares. This is what all programs allow you to do. You enter an Island order to sell 1000 shares at 117 for example. The Island book will start at the top of the book and fill you as following: 300 at 120, 500 at 118 and 200 at 117 1/4. You are OUT of your position.
Cybertrader, however, will reject your order and says that you were locking the island book because your selling price is lower than the inside bid.
I hope that it is clear now. Don't use this execution method but in very fast markets that you know if you dont get out immediately, you will loose your shirt.
The rule against locking the market is a NASDAQ rule and only applicable to the leve II window. Normally, Island book will post your bid or ask if they are better than those posted in level II window. However, by having the option of selecting your order not to be posted on the level II window, you avoid violating NASDAQ rules and still get filled with the listed orders in the Isalnd book. In fact, in real life, if you sent an order like my above example, your order never gets posted, it will get filled the second it hits the Island book. |
