Small Investors Frustrated by AMEX ETF Trading Glitch By John Spence March 12, 2002

Some individual investors are reporting difficulties purchasing small odd lots of exchange-traded fund shares using limit orders on the American Stock Exchange. Odd-lot limits refer to priced orders for less than the unit of a trade (typically less than 100 shares).

Many investors like to use limit orders, particularly for thinly traded ETFs, because it reduces the risk of paying more for shares due to the bid/ask spread. However, there is evidence that relatively small limit orders are not being executed by the AMEX even when ETF share prices fall below the limit order price.

Investors report the problem occurs only with small limit orders, and not with market orders.

"Until this problem is fixed, smaller investors are suffering because they are forced to eat a bid/ask spread to purchase shares," said Mark Armbruster, chief investment officer at WealthCFO, LLC. Mr. Armbruster said as recently as March 5 he put in some small limit orders to "test the system" and they did not get filled even though the ask price was below the limit order.

"The AMEX is aware of the odd-lot processing issue that currently exists, we
are presently addressing the issue and plan on solving it in the near
future," said the exchange in a statement. "This is an isolated problem only affecting limit odd-lots priced away from the market after the opening and limit odd-lots entered prior to the opening, no issues exist with regard to market orders, either before or after the open. As we upgrade our systems, we are researching a solution to the problem."

This issue shouldn't erode investors' confidence in ETFs. For example, odd-lot limit orders were only 1.3% of all AMEX orders entered in February, and only accounted for 0.03% of all shares entered in February, according to the AMEX. But clearly this is a problem that should be fixed. Many investors use ETFs like traditional mutual funds, and so they aren't interested in day trading. However, the problem is significant because how much an investor pays for shares affects his or her bottom line.