BATS Steps Up Competition for Retail Flow
November 30, 2012
The average price improvement in the competing program from NYSE was 15 hundredths of a cent, in the week from Nov. 16 to Nov. 23, according to statistics it keeps on Retail Liquidity Trading on its website.
Such a retail order, Bats said in filing with the SEC would be an agency order submitted by an RMO.
And that’s “provided that no change is made to the terms of the order with respect to price or side of the market, and the order does not originate from a trading algorithm or any other computerized technology,” according to the filing.
The RPI approval has an exemption from Rule 612 of Regulation NMS, which covers subpenny quoting. That’s because the BATS plan contains a provision that allows a BYX Exchange member to submit RPI orders that offer price improvement in $0.001 increments to retail orders submitted by RMOs.
Isaacson makes no apologies for the relief granted on subpennies, arguing it evens the field. The NYSE program was the first operated by an exchange to be granted subpenny ticks.
“Retail investors are today getting sub penny price improvement from wholesalers,’’ Isaacson said. “And they are often getting it at less than a tenth of a cent, which is the minimum RPI increment.”
Both exchanges agree on one point: Price improvement within an exchange environment means better value for the individual investor.
The programs, they said, will provide “new economic incentives and assures greater transparency, liquidity and competition throughout the U.S. cash equities marketplace,” Joe Mecane, NYSE Euronext executive vice president, recently told Traders Magazine.
But wholesalers contend they obtain flow because they provide value.
“What is missing from the [exchange] model is the desk that is there to answer questions about order flow,” Greg Tusar, head of electronic trading at Goldman Sachs said at an industry conference this year.
“Their service model,” Tusar predicted in addressing these exchange proposals, “will cause it to struggle.”
