Clarity on orderType With or Without and On Basis

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1

Imported from previous forum

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Hello,

Trying to obtain further clarity on an order type of “With or Without” and “On Basis.”

With or Without:
• Used to designate an odd-lot order in which the customer asks for an immediate execution at the best available price. An odd-lot purchase order marked WOW will be executed at the current offering price plus any odd-lot differential, and an odd-lot sell order will receive the current bid price minus any odd-lot differential. An odd-lot order marked with or without is likely to result in a lower sale price or in a higher purchase price than an ordinary odd-lot order.

On Basis:
• An order to buy or sell at the basis price. The basis price is established by joint agreement of odd lot dealers in 100 share unit stocks when no round lot sale has occurred during the trading session, the spread between the closing bid and offer is two points or more, and an odd lot dealer has been given a basis price order. (e.g. NYSE order type)

Questions:

  1. Can someone please provide further clarity on the definitions?
  2. Are both order types tied to being odd lots only?
  3. Is a “On Basis” order a market order or priced? I am aware that a With or Without is a market order, while Limit With or Without is a priced order.
  4. What are the subtle differences between the two?

I would gladly appreciate the help,

Thanks,

Xavia

3

Are you asking out of curiosity or do you have a current FIX interface that uses these order types (tag 40 OrdType=6,8,9)? I believe NYSE had those back in 2009 but no longer uses them. Maybe others can comment if these order types are in still in use somewhere.

The context is a market model involving specialists making prices where odd-lot orders may or may not be combined with round lot orders which has an impact on the trade prices. I guess there is a penalty you can agree to pay (by using WOW) in order to get your odd-lot order filled quicker by including round lot orders. If round-lot order determine best prices then “on basis” probably addresses a situation where you have odd-lot market orders that could be filled but no round-lot orders have been traded to establish a proper closing price. It seems to address a very specific situation where you agree to get filled at a price determined by (“on the basis of a discussion amongst”) a special group of dealers. You agree to trust the resulting price, i.e. a limit order in conjunction with “on basis” does not really apply.

Your question has been raised before, please also refer to http://www.fixtradingcommunity.org/pg/discussions/topicpost/167835/

4

Hey Hanno, thanks for the reply. I am asking both out of curiosity and we do have a FIX interface that uses these order types, but not much clarity on there behaviors.

To be clear:

  1. A With or Without order is an oddlot order that can be filled with or without a roundlot transaction. If filled against an roundlot order, then a higher commission rate is charged. Is the commission added on to the fill, or handled on the back end?
  2. Limit With or Without is the same as #1 but sent with a limit price.
  3. I understand that an “On Basis” order is an order that is determined by a group of dealers, but I don’t fully understand it. Could you provide an example or elaborate please?

Thanks for the help

5

FIX does not prescribe where exactly in the process you add fee information. Some provide sufficient information to clearing to then determine the fees there, i.e. not as part of the trading system.

I do not have an example for “on basis” but it reminds me of the LIBOR or FX scandals where prices were fixed amongst a group of banks and did not always reflect a true market price. Others trusted these prices for reference. I would assume that anybody offering “on basis” must also define all the necessary details in the Rules of Engagement, e.g. who exactly this group of dealers is that sets the price you agree to trust with your order.