Tuesday, October 11, 2016

Off Target at the AIM Market

UK stocks appear to offer much greater value than those in the US. Its political leaders may walk themselves into a recession, but not all companies will be affected equally. Needless to say I have become more interested in stocks in the UK of late, but I am having a heck of a time navigating the AIM exchange.

There are numerous times I have put in bid orders *that are the inside bid*. That is, my purchase offer is higher than the official "bid" I see on my broker's quote board. And yet, no matter how long I wait (hours, even), my bid never becomes the official bid.

So maybe the quote machine is wonky; surely the exchange is working properly, right? Well, no. It has happened numerous times that transactions have taken place *below my bid* and my order has not gotten filled at all! Does anyone have any idea how this can happen? I have never seen this happen in North America or anywhere else.

I've gone as deep into the bowels of my broker's help desk as they'd let me, but all this has resulted in is more questions than answers. I've been told my bids are sometimes too large for the stocks, and so they get ignored (and yet I have had partial fills other times, so I know the exchanges have this high-tech capability!), and I've been told these are market-maker stocks with special rules. My opinion is that the people I've talked to have no idea what's going on, which is why they can't explain it to me in a way I can understand.

A web search has proven fruitless.

Does anybody know what's going on?


writser said...

The latter comment is correct. You are probably trading illiquid stocks, for example Beximco:


At the right you see that the 'trading service' is SEAQ: https://en.wikipedia.org/wiki/SEAQ

These stocks have no public order book. Orders are sent to market makers and they are free to decide what to do with them. I have sometimes bid 22 while larger volume trades at 21 and I receive no shares. Another time I've seen a bid/ask of 22/24, I enter a buy order at 25 and nothing happens, even though shares are traded at lower prices.

Basically you get ripped off and there's nothing you can do about it. The system is horrible and you have to take that into account when buying stocks traded on AIM.

Market making these stocks must be quite lucrative ..

Anonymous said...

I experience the same crap.

Researching UK stocks is also impossible.

How are you even screening for AIM?

I don't think it's to do with meeting the exchange or your broker. I think it's due to how much orders are waiting/queued...How small are the companies? Volume traded?

I also know the UK has restrictions on how much your order is away from the bid/ask. So if you do a market order you would get filled....

KJP said...

I've had the same experience trying to buy and sell AIM stocks through Fidelity. The answer Fidelity gave me is consistent with what writser explained.

Saj Karsan said...

Thanks for your replies.

I'm glad, but also sad, to learn that I'm not alone.

It sure looks like a black hole, but it's not clear that we're getting ripped off. I say that because the obvious thing to do would have been to fill the 22/24 at writser's 25 bid and then turnaround and at the same time buy them at 24 for a riskless profit. Instead, no transaction took place, so money was left on the table for the market maker, which makes the whole thing even more puzzling.

Alpha vulture said...

No, you are getting ripped off. There is not a public order book, so the 22/24 bid/ask you see is from the market maker itself.

writser said...

The thing is, you cannot which trades are filled and which ones are not. There is no 'matching engine' so executions are not guaranteed. Example: the book is 22@24, I put in a buy order at 25, you put in a sell order at 21, market maker can publish two transactions: they buy from you for 21, sell to me at 25 and pocket the difference. Now, this is a pretty blatant example of ripping people off and of course they are not that obvious. Maybe the market makers are even trying to do a decent job (though they surely are not losing money while doing so).

But still: it is pretty much impossible to get decent executions on the platform: you'll never buy on the bid if the market goes up or sell on the offer if the market goes down. You're always a step behind and you have to take these frictional costs into account when looking at AIM stocks.

Unknown said...

Writser and Saj:

What brokers have you found to be the best to buy and sell AIM stocks?

I've only tried with Fidelity. I also know that Interactive Brokers does not permit trading in AIM stocks.

Saj Karsan said...

Hi Unknown,

Can't say I recommend any.

writser said...

I live in Europe & use a local broker.

NeverLoseMoney said...

Perhaps it is possible to directly deal with a selling party and arrange a sale somehow? I have seen a fund take a relatively large stake in an illiquid microcap on AIM which they said they bought directly from a large holder they contacted and that wanted to get out.

No idea how this works and which brokers can accommodate a transaction like this and how large it would need to be.

For small investors like me, AIM is horrible when it comes to market makers and trade execution.