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BATS Invites Nasdaq, DirectEdge And CBSX To Withdraw Flash Orders

Tyler Durden's picture




 

A very informative letter by Joe Ratterman, Chairman and CEO of BATS, in which he advocates a rational examination of the usefullness of Flash orders.

"To be absolutely clear – BATS would support a ban on flashed orders based on the rational concerns listed in our July 7th newsletter. If a ban would relieve pressure and give our industry the pause necessary to review and reconsider flashed order functionality, then let’s collectively go that route. Nasdaq, DirectEdge, CBSX … are you open to a coordinated approach to withdrawing flashed orders? We are."

The bluff by the Nasdaq (and the NYSE) has been called. The real question then becomes what remaining advance look conduits remain to some of the biggest market participants. Zero Hedge would suggest that dark pools methods of operations should be immediately examined in the follow through of any imposed or adopted ban on flashed orders.

Senator Schumer, we are, as we noted yesterday, at your disposal to discuss Dark Pools.

 

 

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Thu, 07/30/2009 - 11:48 | 19395 Anonymous
Anonymous's picture

The point about crossed markets is a good one. I cant see any issue with crossed markets, as with the speed of executions both sides should be filled extremely quickly.

Allow crossed markets as they do not hurt the marketplace and demand all orders go directly to the consolidated tape for all to access, including dark pools.

Thu, 07/30/2009 - 12:25 | 19458 gammaman
gammaman's picture

I am still trying to figure out when cross-trades (dark pools) transactions are suppose to be reported (ie, "diseminated") into "consolidated tape" (time between transaction and requirement to report transaction quote to public). Back in 2000-01, based on fidessa implementation, I recall cross-trades not being required to be reported by firm until later in day.

Can anyone provide clarity on this question?

Below is closest paragraph I came across within new rules:

SEC Regulation NMS Final Rules (523 pages)
http://www.sec.gov/rules/final/34-51808.pdf

For the reasons discussed above in section V.A.1, the Commission is retaining the current consolidation model and adopting the consolidation requirements of Rule 603(b) as proposed and reproposed. All of the SROs currently participate in Plans that provide for the dissemination of consolidated information for the NMS stocks that they trade. The Plans were adopted in order to enable the SROs to comply with Exchange Act rules regarding the reporting of trades and distribution of quotations. With respect to trades, paragraph (b) of Exchange Act Rule 11Aa3-1 (redesignated as Rule 601(a)) requires each SRO to file transaction reporting plans that specify, among other things, how its transactions are to be consolidated with the transactions of other SROs. With respect to quotations, paragraph (b)(1) of Exchange Act Rule 11Ac1-1 (redesignated as Rule 602(a)(1)) requires an SRO to establish and maintain procedures for making its best quotes available to vendors. 

To confirm by Exchange Act rule that both existing and any new SROs will be required to continue to participate in such joint-SRO plans, adopted Rule 603(b) requires SROs to act jointly pursuant to one or more NMS plans to disseminate consolidated information for NMS stocks. Such consolidated information must include an NBBO that is calculated in accordance with the definition set forth in adopted Rule 600(b)(42).* In addition, the NMS plans will be required to provide for the dissemination of all consolidated information for an individual NMS stock through a single processor. Thus, different processors would be permitted to disseminate information for different NMS stocks (e.g., SIAC for Network A stocks, and Nasdaq for Network C stocks), but all quotations and trades in a stock must disseminated through a single processor. As a result, information users, particularly retail investors, will be able to obtain data from a single source that reflects the best quotations and most recent trade price for a security, no matter where such quotations and trade are displayed in the NMS. 

*Adopted Rule 600(b)(42) of Regulation NMS defines “national best bid and national best offer.

Sat, 08/08/2009 - 20:00 | 30558 Anonymous
Anonymous's picture

It looks like they report once a month: "VortExSM is a unique dark liquidity pool...", that uses BNY Convergex whose report is at ftp://secrule605.tta.thomson.com/BNYConvergex/ under http://www.tta.thomson.com/msi/public1_5.html.

"Dark pools must report trades monthly on SEC Rule 605" http://www2.hmc.edu/~evans/e104l3.pdf p. 7

The Thomson site does not list Goldman's dark pool, however or any others that I can tell.

Thu, 07/30/2009 - 12:06 | 19423 Deferred Comp
Deferred Comp's picture

If XYZ is offered at 23.11 and executed at 23.11 as his example suggests, how is there any price improvement ?  All this does is give participants ,not customers, an option to make a sale on the offer side of the market with no obligation to do so.  It is total BS.

Every trade ever executed has compressed the spread to zero.

Fri, 07/31/2009 - 00:55 | 20368 Anonymous
Anonymous's picture

um. if you add liquidity (i.e. you sent the flash order) then you get paid a rebate. otherwise you take liquidity and pay for the rebate

dipshit

Thu, 07/30/2009 - 12:11 | 19432 KidDynamite
KidDynamite's picture

TD - it's not a bluff by NASDAQ - DirectEdge is toast without its ELP program - if flash orders are abolished, NASDAQ and NYSE pick up that market share that Directedge has gained.

Thu, 07/30/2009 - 12:13 | 19439 Tyler Durden
Tyler Durden's picture

Nasdaq has Flash. a bluff from a policy POV, not revenue. Of course NYSE will benefit.

Thu, 07/30/2009 - 12:13 | 19441 Deferred Comp
Deferred Comp's picture

Let's take it a step further... how does BATS police order flow, trades, messaging, etc. ?

Thu, 07/30/2009 - 12:51 | 19508 Anonymous
Anonymous's picture

which of the follwoing is true ?

Flashed orders create unique front running opportunities.
Flashed orders create some front running opportunities.
Flashed orders create front running opportunities.
Flashed orders create no front running opportunities

Flashed orders are used solely by highspeed trading firms
Flashed orders are filled solely by highspeed trading firms
Flashed orders are useful solely to highspeed trading firms

Flashed orders disadvantage retail investors
Flashed orders disadvantage any investors unlucky enough to have their orders flashed around
Flashed orders advantage firms who execute against them.. you flash me I win.

Exchanges intended to flash quotes solely to their own members
Exchanges didn't intend to flash quotes solely to their own members
Exchanges dont (always) flash quotes solely to their own members but somehow only their members benefit

Thu, 07/30/2009 - 13:08 | 19533 Anonymous
Anonymous's picture

I like to eat green eggs and ham.

Thu, 07/30/2009 - 14:16 | 19649 dnarby
dnarby's picture

I think IB gives you the option to route your order through a specific exchange, so if you wanted to, you could go through BATS exclusively.

 

If that's so, all we need is for one to decide to play fair, and they'll get all the institutional and pro-trader orders, and the others will have to fall in line to stay in business.

 

Hopefully someone with more knowledge on this can weigh in...

Fri, 07/31/2009 - 06:26 | 20424 Anonymous
Anonymous's picture

@20368
liquidity rebates and price improvement are two entirely different things.

No need to use disparaging remarks, either.

Fri, 07/31/2009 - 06:33 | 20426 Anonymous
Anonymous's picture

I too fail to understand the example put forward under misstatement #3.

He lays out this example of a market .10 bid/.11 offered.
So a buy order for 23.11 comes in-a limit order- and executes at 23.11. The limit buy for 23.11 clears the offers at .11 and what remains becomes the new best bid of 23.11.
Who is getting improved in this example?
The only people who could possibly be improved have to be offers of less than 23.11.

So I can only assume that the players who receive improvement in this example have to have been offered somewhere between 23.10 and 23.11.

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