Brokers, buy orders, and stock ownership?

Discussion in 'Sharemarket Investing Platforms, Tools & Services' started by tom_tom, 15th Oct, 2018.

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  1. tom_tom

    tom_tom Member

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    I was not sure where to put this question, but I am trying to find out how a broker executes a purchase order and transfers ownership to the client.

    for example. (and broadly speaking)

    1 - I place a large share purchase order with my broker.
    2 - The brokers purchases those shares on the market.
    3 - The broker transfers those shares to your account?

    It is this 3rd point which has me stuck. How does the broker transfer the shares to you as the client?
    Do they short sell them to you directly and not the market, and would this transfer be recorded as a short sale?
    Or... does some other process take place?

    Thanks
     
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  2. twisted strategies

    twisted strategies Well-Known Member

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    not the usual way it is done but Commsec ( openly declares it ) will match customer orders as a priority where possible and tags them NXXT

    officially brokers ( when trading on market ) are supposed to buy/sell into the queue of listed orders , ( but you might suspect other brokers would cross-match customers orders as well )

    now buying shares ahead of a customer and then selling to the customer ( at a slightly higher price ) is called 'front-running ' , this is frowned on and sometimes even punished
     
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  3. tom_tom

    tom_tom Member

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    Thanks for your answer. From a brokers point of view (and to individual traders) this is as I suspected. But given that you have conveyed some knowledge of front running, I want to ask if you understand how the institution / institutional broker / or other, transfers ownership from of an institutions supply of a particular stock to the customer (after the customer places a large order). I'm basically asking about the process of using a 'Dark Pool' / 'Liquidity Pool'.

    What I'm specifically targeting is the part after the order has been made and the institution involved has either bought in the open market (possibly front running) and then transferring ownership to the client. The question is, how are those shares transferred to the client?

    The reason I'm asking is that I'm exploring the link between either broker transfers to clients or Dark Pool transfer of ownership to clients and Short Selling activity. I believe that in one of these situations, once the shares have been identified / bought by the broker / institution, they are then sold to the client (yes, possible front running), and this sale is recorded as a short sale. The stats on daily short sale levels may not explain the reason for the short, but I believe that a large chunk of buying activity in the market is a result of these massive short sales by broker / institutions or the like.

    Are you able to answer the question above (in bold), given this view?
     
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  4. twisted strategies

    twisted strategies Well-Known Member

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    the ASX ( and CHESS ) handle the stuff at normal retail level

    however dark pool is a whole different game and that might be very hard to penetrate , i assume dark pool disguises more than buyers and sellers

    some of your other answers may need a licensed ( of former ) stockbroker

    a short sale ( as i understand it ) is were you sell shares you have borrowed first and then buy replacement shares ( hopefully ) at a lower price .( and return the borrowed shares )

    selling shares you have no control over ( no matter how temporary ) is called naked short-selling and in Australia is forbidden ( although it can happen accidentally .. say a fat-finger sale )

    what you seem to be hinting at is probably illegal , but also usually hard to prove .

    what i CAN tell you is certain institutions ( ETFs , managed funds and investment banks ) do lend out shares regularly . .

    do they lend them to other departments of the same institution , that i don't know but it is possible

    sorry i am not more helpful but i am a retail level investor , and avoid a lot of the fancy stuff ( like options and CFDs etc ) i don't even have a margin loan

    cheers
     
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  5. tom_tom

    tom_tom Member

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    Thanks, that is helpful. What I'm looking into (for my own understanding), what other things contribute to the daily short selling figures we can download from ASIC or the ASX here in Australia other than the intentional short selling from those investors who believe the share price is going to fall.

    I read somewhere, some time ago that a large chunk of short selling activity in the market is a result of a convenient way to transfer shares purchased by an institution, to a client. Basically, just selling the shares directly to them in a Dark Pool.

    I originally thought this may be occur between brokers and clients, but that appears to be untrue. What I should have been looking at is institutional buying and selling to corporate clients in liquidity pools (Dark Pools). So if the investor (the client) wants to purchase a large amount of shares in company ABC they employ a specialist to do it. That specialist may already have the required shares in their liquidity pool, and those shares could be transferred to the client at an agreed price. Maybe a little front running in between, but for the purpose of this line of inquiry those shares are transferred to the client in one way or another.

    I had also read (some time ago) that these shares are short sold into the clients account,and thus contribute to the official short sale numbers recorded on a daily basis by the various government institutions.

    However... and this is a big flaw in that argument as far as I can see, if those shares are to be recorded as a short sale, wouldn't they have to be borrowed shares in the first place (or maybe not)? Could it be possible that these shares are sold directly to the client at an agreed price. I'm not even sure how that would be done but it's probably possible, but if it was could that be recorded as a short sale?

    That's for anyone to answer, but it's the contributors to short sales I'm exploring here.
    Thanks for taking the time to reply.
     
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  6. twisted strategies

    twisted strategies Well-Known Member

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    this is one source ( which i suspect will be of limited help to you )

    ShortMan - The top shorted stocks on the ASX

    other sources are patchy 3B disclosures from the likes of Deutsche Bank , Credit Suisse , Norges give some insight into shares lent out ( possibly for short-selling ) and repaid

    since many share lenders are foreign entities reporting is not as timely as one might hope ( days after the transactions complete ) ,

    now you might ask the question ..

    are the disclosed share-lending adventures reported only for the ASX , the ASX + Chi-X or all markets combined ( say over the counter trades internationally as well )

    you probably really need a broker ( or ex-broker ) to spill the beans for you , after all the ASX is responsible for keeping up confidence in the market ( as a relatively fair and equal playing field )

    another suggestion was some ETF managers were also lending shares as a way of generating income while keeping fees low

    now 'block trades ' are another thing where a specialist broker buys or sells a large amount of shares for a customer , all sorts of gymnastics could happen behind the scenes there ( and would the public ever know .. i doubt it )
     
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