Info on how Market Makers/How Orders are processed.
Convo w/ETrade:
Benjamin T (1/24/2020, 8:16:32 AM): Hello Hans. My name is Benjamin Taylor and I am a member of the Active Trader Service team. One moment while I review your request. Me (1/24/2020, 8:16:45 AM): http://lighthousenova.com/WalkaroundBullshit.jpg Me (1/24/2020, 8:16:53 AM): That's what I'm talking about Benjamin T (1/24/2020, 8:17:53 AM): I am not permitted to accept third party link nor can I provide them so could you please describe this. Me (1/24/2020, 8:18:23 AM): Can I send a screenshot???????? Benjamin T (1/24/2020, 8:18:40 AM): Yes, you can upload a screenshot on the Customer Service page. Me (1/24/2020, 8:20:25 AM): Uploaded Benjamin T (1/24/2020, 8:21:30 AM): One moment, let me take a look. Benjamin T (1/24/2020, 8:25:03 AM): I am speaking with our order room right now on this issue. Me (1/24/2020, 8:25:22 AM): Thank you Me (1/24/2020, 8:25:44 AM): I can't wait for what excuse they'll come up with.......lol Benjamin T (1/24/2020, 8:29:37 AM): They contacted the market center where you order is held and you are currently the best offer there. They have not had any orders fill yet so the order you see that traded was done at another exchange. Me (1/24/2020, 8:30:07 AM): Another exchange? Benjamin T (1/24/2020, 8:32:01 AM): OTC markets are not centralized like the NYSE/NASDAQ and there are several market centers that process the orders. Since it is not centralized we run into issues like this where one exchange/market center receives an order and either has something to pair it with on their books or is willing to take that price immediately before the price is posted to the other market centers. Me (1/24/2020, 8:33:20 AM): My order was placed almost an HOUR before that fill for 6K at .0464 Benjamin T (1/24/2020, 8:35:41 AM): You are correct but the order you are seeing filled at different exchange, so the exchange holding your order never saw the other order because another exchange filled the order and then the pricing was posted. Me (1/24/2020, 8:36:28 AM): Explain about these 'exchanges'. Never heard of that before. What is Your 'exchange'? Benjamin T (1/24/2020, 8:42:17 AM): We do not have 1 designated exchange. The 4 letter indicators you see on the screenshot you submitted stand for the various market centers/exchanges making a market on that security. Your order is currently held at GTSM but everyone of the market centers receives and processes orders. Since the exchanges/market centers are not centralized, they can process orders as they are received and post the prices once processed. If they are unwilling or unable to fill the order and it meets the minimum quote requirements, then the pricing is posted to the rest of the market centers/exchanges. Me (1/24/2020, 8:43:16 AM): So you're saying the Me (1/24/2020, 8:43:41 AM): 'exchanges' are actually 'market makers' Benjamin T (1/24/2020, 8:44:07 AM): Correct Me (1/24/2020, 8:44:38 AM): So you're saying my order will NEVER fill, unless someone puts in a buy at 'GTSM' .....is that right? Benjamin T (1/24/2020, 8:49:30 AM): If another market center receives an order that they are unwilling or unable to fill, they can fill the order with another market makers inventory, at the desired price. So one of the other market centers could buy your shares from GTSM to fill an order they receive.
In this case, the market center that received the other order had the inventory and was willing to fill at the price that the order came in on without purchasing from another market maker. Me (1/24/2020, 8:51:37 AM): So one market maker can trade as much as he wants as long as he has inventory, even though another market maker has orders at a better price? Benjamin T (1/24/2020, 8:56:57 AM): Correct, if they have the inventory and are willing to take the order that price requested, then they can fill the order before taking it to another market maker.
You order is the best offer at GTSM but even if it was the best offer on the street then it still wouldn't be posted as part of the NBBO (national best bid best offer) quote because it does not meet the minimum quote size set by FINRA for OTC securities. They still have the duty to fill you if they receive a buyer at your price or better or if they see a buyer posted but it would not show on the NBBO quote.
Since FINRA is the regulator I can post a link to that resource for you:
" it meets the minimum quote requirements, then the pricing is posted to the rest of the market centers/exchanges." Benjamin T (1/24/2020, 9:01:59 AM): Correct, they can not show orders unless it meets the minimum quote requirements. That does not prevent them from working together to fill orders that aren't posted and our order room does reach out the the market centers to confirm the status of orders, as we did for your order, but they can not post an order below the minimum quote requirements.
So if a buyer for 1 share of ASKH came in at $1.00, the market center wouldn't be able to post it as the best bid and would most likely fill it without contacting another market center, so long as they have the inventory. Me (1/24/2020, 9:03:19 AM): OK. What is the difference between NBBO quote and "the best offer on the street" Benjamin T (1/24/2020, 9:04:08 AM): That is the same thing, NBBO would mean the best bid/ask on the street(meaning all exchanges/ market makers). Me (1/24/2020, 9:05:03 AM): But only if it meets the minimum req. In this case it's 10K. ..........Also I was under the impression that market makers can sell shares that are NOT in their 'inventory' Benjamin T (1/24/2020, 9:09:26 AM): The market makers can only fill orders up to their inventory, so if an order came in to sell 1,000,000 shares and they only have 500,000, they could fill up to their inventory. They could increase their inventory by buying shares from another market maker or from other sellers but they wouldn't buy shares for more than they can sell them for. Me (1/24/2020, 9:10:40 AM): Thank you.....pls define what 'reaching out/working together' means:
working together to fill orders that aren't posted and our order room does reach out the the market centers Benjamin T (1/24/2020, 9:14:35 AM): When I called our order room about the order in question, they called, or reached out to, the market maker holding your order to check the status of your order and the security itself.
What I meant by working together is they if they receive orders they can not fully fill, then they make call another market center to see if they have shares available at the price needed. It is not common because each market maker wants to process as much volume as they can but it can happen and it would usually be for large volume Me (1/24/2020, 9:16:11 AM): So at this point, unless GTSM gets a buy order, my order will not fill, correct? Benjamin T (1/24/2020, 9:17:42 AM): They need to receive a buy order at your price, or another market center needs to post a Bid at your price or better. You are the best offer at GTSM when we called and would be due the first fill if they receive a buyer at your price or better. Me (1/24/2020, 9:20:12 AM): There was an order that filled at .0458 about 15 minutes before I was walked around. Since that price 'posted' , doesn't that mean all the other market makers saw that price........
"before the price is posted to the other market centers." Me (1/24/2020, 9:21:25 AM): And I see that GTSM has at least 59,000 shares that are posted......... Benjamin T (1/24/2020, 9:22:18 AM): The price would be posted after the order filled. And they may have the inventory but they themselves either need to be willing to take your price or another buyer. Me (1/24/2020, 9:23:27 AM): Isn't the entire industry obligated by law to fulfill customer orders at the 'best price'? Benjamin T (1/24/2020, 9:28:08 AM): Market Makers are obligated to keep the markets liquid and fill orders but they are not required to fill all orders because the price has to be near the market. OTC market makers have the same requirements but since they are not centralized, some market makers may fill orders as they're received with out posting the price until after the order is filled.
The most common occurrence of this is at opening bell when they have orders built up and move to fill them as fast as possible and the pricing may not so for the first 10-20 seconds because they are filling the orders in house. Me (1/24/2020, 9:29:56 AM): RIght. So what will GTSM do if CSTI posts a bid for 10K at sat .046 (above my offer of .0457)? Benjamin T (1/24/2020, 9:31:12 AM): If that price posts as the quote, they should be filling the order if a market maker shows a bid at your price or better. Benjamin T (1/24/2020, 9:32:04 AM): We have had this chat running for over an hour and we are limited to 30 minutes more most inquiries. I wanted to get a clear understanding of the situation for you but at this point I do need to disconnect this chat session. Me (1/24/2020, 9:32:17 AM): 10K would post as a quote. But nobody knows I have an offer of 9K at .0457 except GTSM........ Me (1/24/2020, 9:32:40 AM): OK.........thanks for the info......... Benjamin T (1/24/2020, 9:32:59 AM): You're very welcomed and thank you for choosing E*TRADE. Take care and have a great weekend!
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