Exchange Price Bands and Erroneous Stock Orders
Summary
The document asks whether an extremely mispriced limit order could be filled and whether brokers or data feeds filter such orders. Its answer describes exchange price bands: in the cited Indian-market example, orders outside a permitted range around the prior close are rejected, with the range adjusted as the market moves. This kind of control can prevent an obviously erroneous order from reaching a trade, though the answer notes that workarounds may exist.
A separate anecdote describes a Japanese broker’s fat-finger order in which the share quantity and price were entered incorrectly, creating an opportunity for other traders. The example illustrates why price limits and order controls matter, but it does not explain how dark pools, brokers, or data vendors handle anomalous orders in general. Rules vary by venue and regulator, so the specific band described should not be assumed to apply across markets.
Key ideas
- Some exchanges reject orders that fall outside dynamically adjusted price bands.
- The cited Indian example sets a permitted range relative to the prior close.
- A large order-entry error can create an opportunity for other market participants.
- Order controls and permitted price ranges depend on the exchange and regulator.
Tags
Full text
# What happens when someone makes absurdly high or low bid or ask on a stock? # What happens when someone makes absurdly high or low bid or ask on a stock? I was thinking, what would happen if I wrote a script constantly spamming small quantity 1 dollar or maybe 0.1 dollar bids on less liquid stocks (not penny stocks) just hoping to see a situation where someone sells me on the market price? I am also curious if dark pool/broker (would make sense for broker to fill orders way below market level if they are allowed to do so) level actually do something like this before order ever hitting to exchanges, as I am sure some people trading manually (they still exist) make keying errors, yet I never seen any bids or asks absurdly out of normal spread. Or is it that they are cleaned from market data by data providers? I am not going to do this in real life as I would expect some issues with my broker. Plus this doesn't seem really morally sound strategy. What got me thinking about this was reading a story about Japanise day trader called CIS and his massive win on J-Com stocks caused by a typing error. Link to the story > https://www.bloomberg.com/news/articles/2014-09-25/mystery-man-moving-japan-made-more-than-1-million-trades CIS’s first big score came on Dec. 8, 2005, when someone at Mizuho Securities Co. made a costly typing mistake. Rather than selling a single share of a small recruiting company called J-Com Co. for 610,000 yen, Mizuho offered 610,000 shares for 1 yen each. The order was for 42 times the number of outstanding shares. CIS saw it had to be an error and was among a small number of day traders and institutional investors who pounced. CIS says he bought 3,300 shares, about a quarter of the actual total, at the limit-low price. By the time everything was sorted out, Mizuho’s quarterly profit was gone and CIS was, as he tells it, 600 million yen richer. (Another day trader, Takashi Kotegawa, who’s known as BNF, made more than 2 billion yen, according to a Bloomberg News report at the time. Efforts to reach Kotegawa were unsuccessful, and it isn’t clear whether he still trades.) ## Answer by nimbus3000 (score 2, accepted) https://quant.stackexchange.com/a/32438 Depends on the exchange and the regulator I think. In India we have something of a limit defined for normal trading. If the stock closed at x, then unless the exchange changes the numbers explicitly, the stock can only trade in 0.9*x to 1.1 *x. if the market moves, the exchange dynamically changes these numbers. It rejects orders beyond this price range. There are workaround to these things as well.
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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.