Check Out What Legal Front-Running On RBS Preferred Stock Looks Like Second-To-Second

London Trader

This is a picture of the very kind of front-running markets now have to worry about since broker-dealers are able to see trades and internalize them.

Dennis Dick from Bright Trading LLC has recorded a sequence of events that he says shows how his orders were not filled because “predatory” broker-dealers stepped in front of his trades and shaved an infinitesimally small amount of his bid.

He has data from a day when he was trading a very thin, illiquid stock where, he says, these predatory trading practices run rampant. He watched trades occur at prices just different from his bids. His orders weren’t filled until he adapted to the new prices multiple times.

Technically the broker-dealer trades are not front-running, he says, because the brokers are offering “price-improvement” (the client gets around a hundredth of a cent shaved off the price of each share) or they’re trading at the same price (“matching”).

But Dennis thinks that because broker-dealers are internalizing these orders, NBBO (national buy or best offer) orders aren’t getting filled and the practice is discouraging displayed liquidity.

Below, there is first a a detailed explanation of what happened, a second recording of the RBS.PRE trades he saw taking place that day.

Dennis made orders to sell his RBS.PRE stock throughout the whole time. FINRA TRF means a trade occurred off the exchange and he was not a part of it (it was internalized). NYSE means the trade was “displayed” and Dennis was able to push his trade through. Now around 20% of order flow is internalized, he says.

It’s interesting to see what the trading environment is like for traders who are competing against brokerage houses to get their orders filled. Check out his data:

Sequence of Events


Time                             Event

10:19:34 I place an order to sell my 300 shares of RBS.PRE at $14.05

10:19:35 An algorithmic trader steps in front of my order at 14.04 (offering on NYSE exchange).

10:19:35 The stock trades at 14.04.; The displayed 14.04 offer is not filled as the quote remains the same, despite the stock trading at that price. The trade was reported on FINRA TRF (FINRA Trade Reporting Facility). This means it was traded off the exchange.

10:19:48 Stock trades again at 14.04, reported on FINRA TRF, displayed offer is again not filled.

10:20:00 Stock trades at 14.0399, in front of displayed offer of 14.04.

10:20:14 Stock trades again at 14.0399, in front of displayed offer of 14.04.

10:20:18 Stock trades for a third time at 14.0399.  Displayed seller is again not filled.

10:20:38 Frustrated, I move my ask price from 14.05 to 14.03.  I am now the best offer.

10:20:43 Stock trades at 14.0299 in front of my 14.03 offer.

10:20:50 Frustrated, I cancel my order.  The best displayed offer is now 14.05.

10:20:58 Stock trades at 14.05, but the displayed offer is again not filled. Trade is reported on FINRA TRF (off exchange). The displayed offer moves down to 14.04.

10:21:15 Stock trades at 14.0399 in front of displayed 14.04 offer.

10:21:31 Stock trades again at 14.0399 in front of displayed 14.04 offer.

10:21:41 I decide to try and offer my 300 shares again at 14.03.

10:21:49 Stock trades at 14.0299 in front of my displayed 14.03 offer.

10:21:55 Frustrated I move my offer down to 14.02.

10:22:06 Trade goes off in front of me again at 14.0199.

10:22:15 I move my offer back to 14.06. Another trader offers in front of me at 14.05.

10:22:22 – 10:24:36 14.05 trades 7 times, and 14.0499 trades once, but displayed offer is not filled on any of these orders.

10:24:44 I move my offer down to 14.04. Other trader immediately steps in front of me and offers stock at 14.03.

10:25:16 14.0299 prints twice, displayed offer not filled again.

10:25:34 Displayed offer 14.03 gets filled, and I get filled on 100 shares at 14.04. Hallelujah!!

10:25:37 14.0399 trades in front of my remaining 200 shares offered at 14.04. Another trader places sell order at 14.03.

10:25:58 14.0299 trades in front of displayed 14.03 offer.

10:26:20 14.0299 trades in front of displayed 14.03 offer again. 

10:26:39 I move my offer from 14.04 to 14.02.

10:26:40 14.0199 trades in front of my displayed 14.02 offer.

10:27:02 14.0199 trades in front of my displayed 14.02 offer again.

10:27:10 I move my offer back to 14.03.

10:27:24 14.0299 trades in front of my displayed 14.03 offer.

10:27:40 14.0299 trades in front of my displayed 14.03 offer again.

10:27:50 I give up and move onto another trade. Later I am filled at 14.03, and the stock proceeds to go higher (only reason I am filled).

Pretty cool.

Time & Sales

Time                     Last        Share (100 lots)    Exchange

10:19:35              14.04                  1              FINRA TRF

10:19:48              14.04                  1              FINRA TRF

10:20:00              14.0399              1              FINRA TRF

10:20:14              14.0399              1              FINRA TRF

10:20:28              14.0399              1              FINRA TRF

10:20:43              14.0299              1              FINRA TRF

10:20:58              14.05                  1              FINRA TRF

10:21:15              14.0399              1              FINRA TRF

10:21:31              14.0399              1              FINRA TRF

10:21:49              14.0299              1              FINRA TRF

10:22:06              14.0199              1              FINRA TRF

10:22:22              14.05                  1              FINRA TRF

10:22:41              14.05                  1              FINRA TRF

10:23:00              14.0499              1              FINRA TRF

10:23:18              14.05                  1              FINRA TRF

10:23:37              14.05                  1              FINRA TRF

10:23:57              14.05                  1              FINRA TRF

10:24:15              14.05                  1              FINRA TRF

10:24:36              14.05                  1              FINRA TRF

10:24:56              14.0299              1              FINRA TRF

10:25:16              14.0299              1              FINRA TRF

10:25:34              14.03                  1              NYSE

10:25:34              14.04                  1              NYSE

10:25:37              14.0399              1              FINRA TRF

10:25:58              14.0299              1              FINRA TRF

10:26:20              14.0299              1              FINRA TRF

10:26:40              14.0199              1              FINRA TRF

10:27:02              14.0199              1              FINRA TRF

10:27:24              14.0299              1              FINRA TRF

10:27:44              14.0299              1              FINRA TRF

10:29:58              13.99                10              FINRA TRF



There you go.

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