Man, I had a really shitty day yesterday. The kind of day that makes you just want to come home, take a shower, climb into your pj’s and curl up on the couch under a blanket with a really big glass of wine. The kind of day that causes you to want to call sick into work…forever.
But, before I tell you about my day, first I need to tell you what I do. I’m a stockbroker for an online, discount brokerage firm. I am not the type of person you probably think of when you envision a stockbroker.
The image I have of a stockbroker is a quick, curt, cosmopolitan man in a nicely cut, pinstriped suit and shiny, hard-soled shoes. Maybe a little slick to his hair; maybe a little slick to his smile.
I, on the other hand, am a mid-thirties, petite, smiling, friendly, woman, who looks young enough to still get carded at bars. I’m emotional (which can be both a good and bad thing) and also extremely empathetic. I have been described as “bubbly” and “touchy feely.”
Not exactly what you’d think of as a comfortable fit in roles.
To be honest, I would have never guessed that I’d be working in the job that I’m in right now. When I was younger I went through phases of thinking I’d be a writer, or an actress, or an English teacher.
That’s because I’ve always loved to read and write. I’m a social butterfly and have a flair for the dramatic. I was never particularly good at math or economics and am not detail oriented or clinical enough to be in finance.
At this point, you may be wondering how the hell I got where I am today and all I can say it was part opportunity and part happenstance.
Originally, I was hired on to be the office assistant. Basically, I worked the phone and front desk and was the “face” of the branch. Which, actually was a pretty good fit for my personality, if not exactly challenging.
However, as I was working there, I had the chance to become sponsored and get my Series 7 and 63 broker’s licenses. It was a good promotion with a good pay raise. I figured I might as well make more money, since I was working in the office anyway.
Plus, I thought it would be good for me to know about this stuff. Even if I didn’t keep working at this company for long, I could take the knowledge with me. It seemed like a good idea to help myself plan for retirement.
Don’t get me wrong, there are parts of my job that are satisfying. Investing seems a bit out of reach to most people, I think. There’s an illusion that it’s something “other” people do. People with more money or more expertise. That it’s for the big wigs, not the blue collar mom and dad living at the end of the suburban cul-de-sac.
Well, the company I work for is perfect for those types of people. Our accounts don’t have fees, our commissions are low, we have local branches and education seminars. It’s exciting for them and it makes me happy to know that I’m helping to demystify a part of our society.
Our clients can learn how to make investment decisions for themselves. They can place trades and watch their portfolio grow. More importantly, they don’t have to worry whether their stockbroker or adviser is really looking out for their best interests. They are the ones making the decisions, and nobody else in the world is going to be more motivated to succeed at making them money than themselves. Our customers get the chance to be empowered.
Which, is probably just as well since Republicans have been beating the drums to privatize pensions and social security for practically as long as I’ve been paying into it and they may find they don’t have a choice about becoming self-investors. (But, that’s another gripe for another day.)
So, yes, I get fulfillment and enjoyment out of the “teaching” aspect of my job.
Another key element of my job is that I don’t advise or consult…at all. There is no way that I’d be able to work as an investment advisor. If I made the wrong trade with some sixty year old lady’s entire life savings…I’d never forgive myself.
Unfortunately, this also means I’m not allowed to say anything if I think you’re making a bad decision. I can explain a market concept or term, but I can’t tell you whether I think a stock will go up or down.
I realize I don’t have have the stomach for the big game on Wall Street. Even though it’s less money and there’s very little respect for the “low man on the totem pole” in this industry, I’m perfectly okay with where I am. For the most part, I’m happy about not advising clients on what to invest in.
And, then there are days like yesterday.
First off, I should probably provide a crash course explanation about how the markets work.
What is an IPO? IPO stands for initial public offering. Basically, it’s the process in which a private company becomes a public company where people can buy and sell shares and invest in it. It’s a means for the company to raise cash; usually in the hopes that they will be able to take that additional capital and grow their company.
When a company is going to go public, they hire an investment firm that can help them walk through the regulatory process and make the transition from private to public go smoothly. That main company is called an underwriter.
The underwriter takes on the risk of setting a base price and vouching for the success of the open. In order to mitigate that risk, an underwriter will typically recruit other company’s to vouch for an allotment of the shares and help get them sold. They are called the underwriting syndicate.
(I know this is a bit dry, but bear with me.)
Once all the shares have been divvied out amongst the syndicate, an initial price is set to sell to these institutional investors. For Facebook, the price was set at $38. Mind you, $38 dollars is NOT the guaranteed price that the stock is going to open up at at the primary market. It is the price that the syndicated institutional investors pay.
So, Facebook was slated to open up on Friday at 11am. Most of the retail investors (read: mom and pop) have been sitting on their couch, watching CNBC and have seen this price of $38 bandied about in segment after segment all day on Thursday. They think they’d like to own a piece of that fancy social network and $38 sounds pretty reasonable considering how big “they” say it’s going to go.
The morning of the IPO, retail investors put their orders into the system. Now, with IPO’s there’s no way to know where it’s going to open up at, so we make them place limit orders where they specify the price they’re willing to pay for a share. The order will only go through if it reaches the price they’ve specified or better.
A lot of the orders, I noticed, were placed at $40 or $42 dollars. Some limit prices were as high as $45, some as low as $38. However, for the most part, people were giving $2-4 wiggle room.
Nasdaq, which is the market Facebook was set to start trading on, experienced technical difficulties on Friday morning. They were having a hard time accounting for the HUGE influx of orders that are getting put into the system. In essence, there was a mad dash for the entrance and they had to get everybody standing in orderly lines before they could let people enter. (Remember 82 million in 30 seconds…)
They were especially having a hard time accounting for all the orders that were getting changed and cancelled last minute. So, they delayed their open to 11:30am and started the stock at a price of $42. I had six clients sitting in the lobby for half an hour on Friday morning waiting to watch the stock open up. All the while, people are calling in trying to place last minute orders.
When it finally did start trading, the system crashed, and none of the trade confirmations got reported. It looked like the orders were all hanging in limbo in the system. There was an even greater influx of calls as people tried to figure out if they had bought their stock, or not.
Now, here is the kicker. The trades themselves are timestamped and in the system, so if they are a due an execution, it is possible for them to have filled the order (aka: bought the stock) but not get reported.
That’s very important to understand. These people had orders in the system that got executed, but there was no way for them to know whether or not they actually bought their shares because Nasdaq had delayed execution reports and were not sending out trade confirmations.
Unfortunately, many of our online investors didn’t try to call in and were sitting in their living room with no idea this was happening (mainly because it’s SUPER rare and nobody could have predicted it.) So, then investors started to see the price of Facebook drop. They logged into their account and cancelled the order that was showing as pending (even though it technically could have executed.)
I’m sure they were thinking, “Phew! I dodged a bullet on that one! Now that the stock has dropped three dollars, I’m really glad my order didn’t go through.” And, to make matters worse, Nasdaq didn’t get their act together by the end of Friday’s trading day, so they went to bed, if not happy, then content.
Nasdaq was STILL working out the kinks in their system and trying to match trades to the time and sales tape all day Monday. Everybody knew there was a problem and that Nasdaq messed up, but nobody really knew to what degree at that point. All day, CNBC mentioned there were reports from multiple brokerage firms that there were still confirmations being worked out in the system and trades had not been reported.
Then, Tuesday comes around. Tuesday at 3:30pm to be more accurate. Now, all of a sudden, Nasdaq starts sending out delayed order executions to the various brokerage houses. Trade confirmations on all of those orders that people had gone to bed on Friday thinking they had cancelled.
So, I get a list at 3:30pm…TWO and a HALF DAYS after the original trades were placed into the system…and I have to call all of these poor saps and tell them. My conversatons basically go like this:
“I’m sorry to inform you, sir, but your order to buy those 4000 shares at $42 was, in fact, executed. I realize that you thought you cancelled your order, but unfortunately the market has come back saying you are due the fill. No sir, it’s not possible to “just forget it.” I understand you no longer want those shares. No sir, it’s not my fault. This is an issue with Nasdaq. Yes sir. Technically all trades take three business days to fully settle, so they are allowed up until tomorrow to report trade confirmations. Well, unfortunately sir, if there is a debit in your account we will have to ask that you either deposit more money or we’ll have to find a way to make up the deficit. Yes, sir, that could include selling any stock you may have in your account as equity. I’m very sorry, sir. I understand why you’re angry, sir. I would be very frustrated, too, sir…”
Imagine how much worse it was if that same guy who thought his order had been cancelled, then decided that, “Hey, I still want to own shares of Facebook. Now that it’s trading at $34 on Monday, I think I’ll go ahead and buy.” Because, that trade is ALSO valid. So, now he’s stuck in the position of having two trades go through and owning twice the number of shares and spending twice (or more) of the cost than he actually wanted.
Then you have the customer that said, “Well, if I had known I owned the stock, I would have sold it before it dropped so low, or at the very least put a stop order in.” But, of course, they couldn’t have known they owned the stock, and there was no way for them to put a sell order on shares that technically weren’t getting reported and registered into their accounts. These people had NO choice but to ride the stock down until they received confirmation of their order Tuesday afternoon (or possibly even as late as Wednesday.)
Of course our clients are irate! They think it’s a scam. They feel like the Wall Street has, once again, fucked Main Street over. They never had a chance at that $38 initial price. They had to wait and queue up for the stock to start trading on the primary market, and then that market failed.
I think this system sucks and I don’t blame them for thinking it sucks, too. However, what really bothers me is that I’m the messenger. I’m the one that is their representative for this system that I don’t like either. I feel like the worst kind of hypocrite and charlatan and I came home hating myself for it.
I need a new job.
Disclaimer (because I have to): Please don’t take any of this as advice or consulting. I’m an anonymous blogger for a reason. This post should not be taken as legal commentary or as an official brokerage company stance in any way, shape or form. Thank you.