NYSE Proposes Rule Change on Canceling Orders
October 25, 2012
NYSE Euronext filed a proposed rule change with the Securities and Exchange Commission that would authorize the New York Stock Exchange or NYSE Arca to cancel orders when a systems or technical issue occurs.
“This is an outcome of the Knight situation,” says Sal Arnuk, partner, co-founder and co-head of Themis Trading LLC.
In August, market maker Knight Capital lost $457.6 million in less than an hour because of a software glitch. Knight sent a flood of erroneous orders in NYSE-listed and NYSE Arca securities into the market.
The NYSE proposes to amend Rule 17 by adding a new paragraph (b)(3) that specifies: “The Exchange or Arca Securities may cancel orders as either deems to be necessary to maintain fair and orderly markets if a technical or systems issue occurs at the Exchange, Arca Securities, or a routing destination. The Exchange or Arca Securities shall provide notice of the cancellation to affected member organizations as soon as practicable.”
Under the proposed rule, if Acra, or a routing destination experiences technical issues that result in Arca not receiving responses to immediate-or-cancel (IOC) order, Arca or the Exchange would seek to cancel the routed orders affected by the issue; in some instance Arca might acquire an error position by assuming a position in the affected stock. It could also assign error positions to affected member organizations, according to the release.
Arca would also be able to trade out of error positions resulting from technical issues. Rule 17 (b) (3) is effective 30 days from the date it was filed, October 10.
The Nasdaq Stock Market and Direct Edge both initiated similar rules for cancellation last spring.