OUT OF ORDER:
Are Controls Needed on Choice, Complexity and Competition?
January 10, 2013
To that end, Nasdaq OMX Group has tried to turn the proliferation of order types from an inexplicable morass into a learning opportunity for its members.
And a potential competitive advantage.
While BATS, the NYSE and Direct Edge kept introducing new order types, Nasdaq OMX in November started to explain how each of its 10 main ways of putting in buy and sell orders worked.
The exchange operator began circulating to its members an interactive rundown on how its order types work, assuring them that they can’t be used by any market participant to jump ahead in the queue for striking a transaction.
The combination of audio descriptions with summaries and examples on slides, in synchronized chapters, was sent by email to head traders, technology contacts, compliance officers and executives of member firms. Traders Magazine obtained a copy.
The automated presentation was an attempt to educate members and investors on the workings of order types and how public bids and offers interact with hidden orders not shown on lit or “displayed” markets.
The presentation itself, narrated by Michael Blaugrund, a vice president of Nasdaq OMX transaction services in the United States, made no recommendations on how to best use order types.
But he and Nasdaq specifically note that “there are no order types that offer queue spot privilege or queue jumping,” a reference to concerns that some “hidden” orders can jump to the head of the line, when a trigger turns them into publicly displayed quotes.
That exemplifies the pressure being felt by exchanges to show they are not playing favorites, when they seek rule changes when filing for approval of new order types or functions.
“We’ve seen in the past few weeks an increased interest among our member firms, but really also in popular culture, if you will, in exchange operation,” Blaugrund said in an interview with Traders Magazine. “And I think it’s our view that the more transparency around how things operate, the better.”
The interactive breakout of its order types, now widely disseminated via email and on Nasdaq OMX’s Web sites, means institutional investors and retail investors can see “there are no secret order types, every member has access to every order type, and that every order is going to interact based on price-time priority,” Blaugrund said. “There are no orders that give anyone some sort of special advantage.”
SLANTING THE PLAYING FIELD