Eliminating all-or-nothing trades a bad move for investors, especially small ones

Benj Gallander and Ben Stadelmann
Friday, January 30, 2009

One major change has just occurred on the Toronto Stock Exchange and the TSX Venture Exchange. The powers that be have decided to eliminate “all-or-nothing” orders. Now you can only lay your order on the tracks and hope that the whole enchilada is consumed. “Hope” definitely being the operative word.

The decree to stop AON trades, which accounted for almost one percent of trades, was passed down by the Investment Industry Regulatory Organization of Canada. Under their Market Integrity Rules, it is the brokers’ duty to get the best price for their clients. To do this, the ability to buy or sell a stock on the various markets where it might be multiple-listed, possibly by dividing the request, has been deemed important. An AON order negates this possibility.

Um, sure. However, while abolishing the AON theoretically helps investors, in the real world it ultimately hurts them, especially small ones who play penny stocks. Without all-or-nothing orders, they can end up buying and selling tiny lots of shares with commissions eating up their potential returns.

Fortunately, in the era of discount brokers, the damage will not be as great as in the “old” days. Back then, when the only choice was full service, commissions automatically were much higher. At least now, if one is going to be eaten by charges, the discounter gouge is not as large.

Still, companies that are harder to play because of this change in rules are legion. Take Burntsand, for example. This company, which specializes in enterprise content management, enterprise operations and service management, has revenue of more than $20 million, sometimes making a bit of money, now and then losing a tad. When one of us bought it a year ago at 12 cents with an initial sell target of 49 cents, the purchase was a thorny challenge given that the stock trades an average volume of less than 60,000 shares a day.

This January, there has not been one day where the volume was greater than 100,000. An investor who wants to buy around $10,000 worth at the current trading price of 8 cents would have had to purchase all of the shares traded over the past nine days, with accompanying daily commissions. Of course, that is highly unlikely. At least with an AON order, the trade might be done in one fell swoop. Or simply not at all.

In our opinion, giving investors the option of all-or-nothing orders is worthwhile. While the IIROC suggests that getting rid of them is in investors’ interest, overall it appears to do more harm than good. Of course, this is not the first time that investors have protested new rules that are supposedly for their protection, but end up curbing their choices and flexibility in how they trade the market.