No. of Recommendations: 4
Below is T&S on a bond over the past several days, as reported by FINRA. Which buyer screwed up? Which broker took advantage of their customer?
Trade Time Qty Price Trade Type (Special Notes)
02/28/2012 17:57 100 56.990 Customer Buy
02/28/2012 17:57 100 56.990 Customer Buy
02/29/2012 08:05 5 61.219 Customer Buy (Price includes commission)
02/29/2012 08:47 1MM+ 56.500 Customer Buy
02/29/2012 11:58 50 57.600 Customer Buy
02/29/2012 16:03 6 60.000 Customer Buy
02/29/2012 16:04 10 60.000 Customer Buy
02/29/2012 16:04 20 60.000 Customer Buy
02/29/2012 16:05 10 60.000 Customer Buy
02/29/2012 16:06 5 60.000 Customer Buy
02/29/2012 16:06 20 60.000 Customer Buy
02/29/2012 16:07 10 60.000 Customer Buy
03/01/2012 11:22 1MM+ 57.000 Customer Buy
03/02/2012 14:35 1MM+ 57.500 Customer Buy
03/05/2012 11:35 5 58.469 Customer Buy (Price includes commission)
03/05/2012 15:50 13 63.250 Customer Buy
03/05/2012 16:41 1,000 57.500 Customer Buy

Why did someone buy 13 bonds at exactly a FIVE-POINT MARKUP PER BOND (once Zions Direct’s commish is backed out of the earlier trade) to the trade of 5 bonds done just 4-1/4 hours earlier? Clearly, he/she made no effort to determine where the market was trading at and simply bought the bonds at the steep markup he or she was quoted by an abusive broker.

I.e., do the math. At a commish of $10.95 per ticket, the commish adds .219 points per bond on a 5-lot to the implied asking-price of 58.250. Add a 5-point mark-up to that ASK, and you get the 63.250 price that the trade of 13 was done at, or a net-profit of $650 to the broker for two mouse clicks and ten seconds of work.

The bet has to be that the buyer is completely unaware that he/she was taken advantage of. One could be cynical about that and say that he/she got exactly what their fat wallet and empty head deserves. But in the long run, unfair markets favor no one, and such practices should be exposed and protested.

Always, always, always, before you execute, know where the market really is for your market-side and the size of your trade. Buy-side or sell-side, you're going to have to eat the spread, and not much can be done about that. For sure, you can write the order as a limit order and attempt to buy at the bid, or sell at the ask, or try to split the spread. If you do get a fill, you can be sure that you didn't want to do the trade, because the desk was dumping, and you are on the wrong side of the trade. Also, trade size does matter, with the best prices going to those who trade in size. But if you're doing fives and tens, there's no reason why you can't get executions done at prices close to those doing round lots, and there's no reason why you should ever pay abusive markups.
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