[ryanjshaw]

> But Jack has no god-given right to be able to buy shares at the price he likes best

It seems like the disagreement really lies here. I'm not a finance expert so I'll probably get a few things wrong but is it fair to summarize the two perspectives as follows?

1. Jill is merely quoting a price for independent blocks of shares on independent exchanges. If a buy order is placed against that quoted price, she has the right to reissue quotes elsewhere. This is no different from Jill selling apples at the market on 1st street, as well as at the market on 2nd street, then receiving a large order on 1st street that prompts her to call her sales manager on 2nd street and have him increase the price of apples there. Or for Janice, sitting next to Jill's stall on 1st street, overhearing the sale at $17 and repricing her apples upwards for when the demand inevitably spills over to her stall.

2. Jill is making an offer to sell a combined block of shares at a particular price. Even though her offer is broken up over multiple exchanges, since a single buy order can execute on multiple exchanges her offer should hold across all of these exchanges. Yet she is taking advantage of the physical makeup of the market to bait large orders (thereby revealing market demand) and then switch to higher prices (thereby capturing a larger profit).

I emphasized "quote" and "offer" above because they capture two different concepts in contract law. I'm not sure if the concepts are the same in financial markets but the principle seems to be at the root of the disagreement. If Jill was merely "quoting", unless the rules of the exchange specify otherwise, she is free to reissue her quote and therefore perspective #1 makes sense. If Jill was making an "offer" however, presumably she should be bound to the terms of her offer regardless of the physical details around how she publishes that offer, reinforcing perspective #2.

So: do the market rules have such a distinction? I found the link [1] below which suggests both perspectives are valid - depending on the type of market one is participating in, if I understand it correctly. Is this a matter of people confusing the two types of markets? (I have to say that perspective #2 seems pretty impractical to me in markets with multiple exchanges participating, and #1 doesn't negatively impact the market -- either it makes economic sense for Jack to pay the new price or not, why do we care if he saves a few bucks if we fiddle with the rules?)

[1] http://www.investopedia.com/ask/answers/06/quoteorderdrivenm...

[throwaway283719]

Yes, I think that's a fair summary.

I don't know much about contract law, but it may be interesting to know that a resting order on exchange, with a set price and size, is called a quote.

The terminology offer is used in financial markets for a resting order to sell, distinguishing it from a bid which is a resting order to buy, although many market participants will actually use the terms bid and ask rather than bid and offer. Whether this is to avoid confusion with the contract law term, I have no idea.

It won't surprise you to learn that I also think that your perspective #2 is unworkable in a situation where you have multiple exchanges (how would it work - would you require that quotes on exchange B must remain for a specified period after a quote on exchange A is hit? That doesn't seem sensible).

[stevejones]

It is supposed to be the case that you do not place orders on an exchange that you have no intention of executing. i.e. if you place an offer which you intend to withdraw then replace with a higher one the moment you detect interest in the offer then you are breaking the rules.

In general it's also pretty scummy to do it. Imagine a shop seeing you taking items from shelves at an advertised price and saying "Well that shows there's demand in these goods so we're raising the prices on everything in the customers basket before they get to the checkout."

[kasey_junk]

That is not at all true. It is perfectly legal and valid to place quotes at a price that you expect is valid and change them once interest is detected. This is a standard market dynamic and one that makes the markets work.

Your analogy is not all how HFT works. A better analogy would be a string of gas stations going down the highway. A tanker truck comes to the first one and buys all it's gas. Then the second one, and then the third. The manager at the third station calls the fourth and tells them to raise their prices. How is it scummy to do that, but not to buy up all the gas at what is clearly a too low price?

[VikingCoder]

> This is a standard market dynamic and one that makes the markets work.

I don't believe this is necessary to make markets work.

[harryh]

Forgot your mumbo jumbo evidence & logical reasoning! I believe what I believe and you can't stop me!

stomps foot

[VikingCoder]

Please don't be so rude, it doesn't add anything to the conversation.

There are many markets where you list a product for a price, and are legally bound to sell them at that price.

Those markets function, proving that withdrawing quotes is not necessary to make markets work.

[gd1]

Huh? The rule is you can't place orders that you have no intention of executing at the time you place them. You're perfectly entitled to change your mind afterwards, or adjust your price as new information becomes available. You just can't place orders when it is your goal to not have them execute, and that was your goal before you even sent them.

[rahimnathwani]

Whether she has to honour the quote is irrelevant, as she yanks the quote at the second exchange before it is hit.