A new exchange traded note started trading today, the ETRACS Fisher-Gartman Risk-On ETN under ticker symbol ONN.
New issues often lack liquidity as few market making participants jump in to make markets right away. The issue opened for trading at $24 and bounced around between $22 and $27 in early trade. Then at 09:51:42 a.m. EST, sell-side liquidity vanished for a split second showing the best offer at $35.
Over-the-counter market makers (aka internalizers) are allowed to print retail market orders anywhere within the spread. When the national best offer flashed $35 for a split second, some quick internalization program printed a retail market buy order up at $34.968. The stock immediately traded back down to $26, allowing the OTC market maker to cover for a quick nine points. The poor retail investor who sent that market order immediately lost the nine points.
Here is the trade sequence: