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This question is really about trading rules, not fixed income per se, but I believe that many of you have had experience with buying/selling thinly-traded preferreds, so I'm posting here.

On Monday of this week, I entered a sell order for 500 shares of a preferred at a limit of 25.48. Except for the limit order, there were no restrictions. It was not an all or none order. The order was good until cancelled.

I noted that on Tuesday afternoon, a trade had gone through on that day for 25.89. I called to find out why my order had not gone through first, since it was at a substantially lower price and had been made the day prior. The rep put me on hold for a long time, perhaps 20 minutes. He came back and told me that the 25.89 trade had occurred on the open. I did not understand what difference that would make, and after some further back and forth, he told me--as though I did not understand--that both price and order time are involved in determining the order of trades. Yes, of course, but I thought that price trumped time of order. He then pointed me to some language in their trading rules--I'm loosely paraphrasing here--that each exchange has its own rules re trade execution, and that price alone may not determine the order of execution. Incidentally, that opening trade was for 2000 shares and represented a 52-week high. This particular trade did not sustain the high and the price went back down to where the security had generally been recently.

The particular "rule" that I seemingly encountered for the first time seems rather vague and does not sit well with me. Is anyone here familiar with this situation?

I had a similar experience with a stock and it was explained to me as follows. A limit order isn't really an "order" per se (as far as the trading floor is concerned), it just becomes an order once the stock trades at a price that is at or beyond the limit. Perhaps in this case because there were no trades at or above the limit, your order hadn't been submitted until after that trade took place?

I have no idea if this explanation is correct or not, it's just the one that the representative (a "manager" that I was handed off to by the regular phone rep) on the phone told me, just like I have no idea if the explanation they gave you was correct. Perhaps "on open" and "on close" orders have priority over limit orders, but I don't see how that can be managed exactly, what if the "on open" and "on close" orders are limit orders as well? Or maybe those kinds of orders cannot be limit orders???

It seems to me that the "best" price ought to trump all other considerations (other than, of course, a restriction that prevents the trade - "all or none", "fill or kill", etc).
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