What is a "trade bust" and how does it happen?

Question

On the Interactive Brokers Other Fees page:

Trade Busts/Adjustments

If an exchange or other market center charges Interactive Brokers a trade bust, trade cancel fee or trade adjust fee because of an order placed by an IBKR customer, or because of a customer bust or adjust request, the customer is fully responsible for the fee and the fee will be deducted from the customer's account.

In addition to fees charged by exchanges (and in cases where exchanges do not charge a fee), IBKR will charge the following fees for requests to have trades busted:

• $50 for the first bust request in a calendar month.
• $100 per incident for subsequent bust requests in the same calendar month

Interactive Brokers further says that the CME Group charges 500 USD for a trade bust, and Nasdaq charges 250 USD for a trade bust.

My questions:

• What exactly is a busted trade, and how could it happen to me when trading stocks? I do not want to charged hundreds of dollars for something I could prevent.
• What is the difference between a "trade bust, trade cancel fee or trade adjust fee" and a "customer bust or adjust request"?

I found a description in the Interactive Brokers glossary, but I don't know what exactly it means and how busted trades could happen to me:

A busted trade refers to a situation where an execution occurs and IB receives the execution message from the exchange. The exchange then realizes some type of error (Pricing, electronic, obvious error, etc) and rules to bust (cancel) the trade. The exchange makes these rulings entirely on their own.

Answer 1

Generally the trade is busted if the market operator decides that the trade was result of an error. For instance the price artifically higher or lower. I saw sometimes such price deviations on premarket.

I found one discussion on the topic: busted trade on INET

As for fees I think they relate to the situation that you made an error and you request the trade to be busted. But do they apply to the situation when other side requests the bust and you are charged? I wonder by myself and maybe we should ask customer service.

Answer 2

I just stumbled upon and wondered about this myself. The table displaying the fees for NASDAQ references this, explaining conditions for a cancellation of an already filled order and when and what fees apply.

Hopefully it is obvious that this concept is new to me, too, but I'll write down my shaky understanding of it anyway:

I think of it, for instance, as someone erroneously placing a limit buy order way above the ask, or for a ludicrously huge number of shares and subsequently asking for the trade to be cancelled. This should then fall under the category

requests to have trades busted

which will cost you at least $50 from IBKR if you file the request with them. See here and

the Trade Cancellation Request tool located within Account Management

(I found it readily by typing "cancellation" into the IBot).

On this site it lists only the following w.r.t. trade busts and the application of fees:

if we have to cancel or modify an order at your request, in case we need to bust or adjust a transaction for causes that are not imputable to us[.]

Apart from IBKR fees that apply when you request a bust, there could also be $250 NASDAQ fees when you (or rather IBKR on behalf of you) appeal a bust but your appeal is decided to be unjust:

an appeal is requested on a ruling that was previously made and that appeal upholds the original decision[,]

e.g. you had a limit sell order way above the ask and somebody bought, then that someone requested a trade cancellation and you don't want to accept having to return your sweet, sweet gains, file an appeal -- and still have to return the money plus now an additional $250 for taking a NASDAQ employee's valuable time.

In short, it seems to me pretty clear that, regarding stocks, you have to be actively filing a complaint to be eligible for the fees.

Regarding CME (i.e. futures and options AFAIK) I'm honestly not that sure, because that is grade A lawyer speak to me. But I have a hard time imagining someone having to pay essentially a fine for e.g. just having a resting offer away from the bid/ask that someone erroneously fills...

Answer 3

I had a busted trade just this week. I had an ES put that went from $6 to $20+. I placed a market protect order and the order executed at $3.

Here's what interactive brokers said that exchanges accept a trade bust request within certain minutes after a trade. A bit thin explanation without further detail. I wasn't able to find any more information. It was a market protect order. Lessons learned, never place market orders.