SEC Examining How Exchanges Develop Order Types
February 22, 2013
The inspections come as the number of order types and the almost limitless permutations in the way they can be used to buy or sell shares have added what buyside and sellside traders have complained is undue complexity to trading.
Among the most concerning are hidden orders, which do not, in some cases, get activated until the price of a given stock slides or some other action takes place. Other order types will execute only in low-cost venues or time windows.
“There’s an order type a minute being created,” said Jennifer Setzenfand, former chairman of the Security Traders Association, which represents 4,200 individuals involved in trading equities and equity options.
At the STA’s annual conference last fall, BATS Global Markets said it conducted a study of how many “unique order type combinations” can be used to set buy or sell instructions on its two national exchanges in the United States. Its tally: 2,000.