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The image below shows the Level 2 bids for Fortescue Metals Group Ltd (OTCQX: FSUMF) on 2020-10-07 10:19 am:

FSUMF Level 2 bids on 2020-10-07 10:19 am

Notice the 0.01 × 10,000 bid by NITE (Virtu Americas LLC), which is extremely unlikely to be matched. What's the reason for placing a bid at an absurd price? Why don't market makers simply cancel their orders instead?

I've noticed this practice — market markers placing very low bids or very high asks — in many securities, so I think this is a rather common practice.

I understand that the minimum quotation size in this case is a function of the bid price (according to FINRA rule 6433. Minimum Quotation Size Requirements For OTC Equity Securities), so my question is more about the $0.01 bid price rather than the 10,000 bid size.

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First, MM's are bound to provide quotes within specific parameters by contract. ONE of those parameters is time (95% of the time, i.e.).

Second, this could be just a bet (maybe someone sells market - it DOES happen, MM's often keep far away orders for cases like that) or.... a software issue (not able to handle a 0 price "properly" and thus providing a quote for the smallest possible price) - on the MM side.

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  • "this could be just a bet..." What does this mean? Who is betting? Betting on what? – Flux Oct 14 at 7:33
  • Well, if the order ois from a market maker, grade school logic would tell you it is the market maker betting. – TomTom Oct 14 at 7:36
  • What is the market maker betting on? Is the market maker worried that there is an upcoming large sell order will take out all the bids above it? – Flux Oct 14 at 7:38
  • Exactly. And I know people who make quite some money with that - though at a lot of work (which can be automated). – TomTom Oct 14 at 8:04
  • How does it work? Place a large sell order, take out all the bids, scare all the market participants, ... ??? ..., and profit? Could you explain the steps? Thank you. – Flux Oct 14 at 8:12

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