Nasdaq Rolls Out Flash Orders to Market Participants As Debate Stirs
The Nasdaq Stock Market launched two types of “flash” orders on Monday that give participants a chance to fill an order by disseminating it to market participants before it’s routed to the public markets.
Nasdaq’s Routable Flash Order will check its own order book first and if the order is not filled, it will go ahead and flash that order to its participants via Nasdaq’s proprietary ITCH feed.
“This order will basically flash out to our ITCH participants which are both customers and non-customers and it will flash to them for up to 500 milliseconds,” explained Brian Hyndman, SVP of Nasdaq Transaction Services in an interview with Advanced Trading.
Nasdaq is offering a second order type, called the INET-Only Flash, which exposes the order to participants for execution, without routing out to the public markets. “This will give customers the ability to get very aggressive and flash an order out to our ITCH participants or (market data) vendors, (i.e., Bloomberg or Reuters) and stay there for up to 500 milliseconds. If there is no execution, it will most likely cancel back to them,” according to Hyndman.
But the topic of flash orders is sparking considerable debate in the industry over whether holding these orders for fractions of a second and showing them to a large class of market participants and market data vendors is fair to investors. In a letter filed with the SEC on Friday, NYSE Euronext, operator of the New York Stock Exchange, opposed the practice, and asked the regulator to intervene in Nasdaq’s and BATS’s plans.
In the letter, NYSE Euronext argues that the Nasdaq Stock Market and BATS Exchange filings, “each propose to modify their respective routing strategies to provide preferential treatment for their own market participants before routing orders to away markets. “
NYSE Euronext urged the SEC “to undertake a market-wide review of the impact of such pre-routing display functionality in use at Direct Edge and CBSX and as contemplated by Nasdaq and BATS Exchange.” NYSE Euronext believes the proposed functionality “harms the investing public because it may not result in the best execution for the customer.” [See the Exchange's Blog for "NYSE Asks SEC to Strike Down Nasdaq, BATS Plan to Hold Orders," with link to letter]
It points out that displayed limit orders at the NBBO (national best bid or offer) in other market centers may not receive an execution because the contra-side is at one of the venues (i.e., Nasdaq or BATS) that is displaying the offers for the benefit of its own market center.
Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio
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