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Jurassic


Total Posts: 133
Joined: Mar 2018
 
Posted: 2018-08-31 16:04
https://www.wsj.com/articles/new-speed-bump-planned-for-u-s-stock-market-1535713321

EspressoLover


Total Posts: 330
Joined: Jan 2015
 
Posted: 2018-09-01 01:56
This is pretty much just a naked attempt to garner market share by gaming Reg NMS. A delay for liquidity providers but not takers is pretty much just last-look by another name.

The last look functionality gives the liquidity providers an implicit option. Therefore a quote with last-look is not be equivalent to a quote at a normal exchange. Market makers will tend to keep quotes alive at EDGA, after NBBO crumbles at other exchanges, because they get 4 ms to wait out price discovery. Since EDGA is <2% of ADV, the relative market share gain could be pretty substantial.

Hopefully the SEC is smart enough to see through this ruse. I'm all for venues experimenting with new market structure. But only traditional limit orders, without speed bumps or other provider privileges, should be regulatorily eligible for NBBO.

Edit: Apparently EDGA is not trying to make its speed-bumped quotes NMS protected. So, this does seem like an honest attempt to experiment, rather than game NBBO.

Good questions outrank easy answers. -Paul Samuelson

Strange


Total Posts: 1434
Joined: Jun 2004
 
Posted: 2018-09-01 06:36
> But only traditional limit orders, without speed bumps or other provider privileges, should be regulatorily eligible for NBBO.

Indeed: "Cboe wouldn’t seek protected-quote status for orders displayed on EDGA, the people said. Such a stance could help Cboe’s plan win SEC approval."

Could you elaborate on the equivalence of the delay and last look for a liquidity provider? It feels counter-intuitive to me; e.g. a liquidity provider is a 100 offered at EDGA and next thing you know the best offer moves to 100.01. If the MM is prevented from pulling the order by the delay, don't they explicitly give the takers more opportunity to pick them off? Am I missing something?

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'

bullero


Total Posts: 10
Joined: Feb 2018
 
Posted: 2018-09-01 10:43
I am thinking the same. So lets say I am showing an offer of 100.00 at some place X and at the same time the stuff is being bought in another venues for more than 100.00. Now, I think I would like to change my offer from 100.00 to some higher price. Since I am on the passive side I need to wait some Y amount of time before its being processed by the exchange. Meanwhile, some other dude might pick my order which is waiting.

Edit: But If I understood the article correctly the speed bump is applied to market orders:

"The delay wouldn’t apply to all orders equally: Instead, it would affect only orders seeking to hit unexecuted buy or sell orders already posted on EDGA, the people said. Traders posting new orders to be displayed on EDGA wouldn’t be affected."

EspressoLover


Total Posts: 330
Joined: Jan 2015
 
Posted: 2018-09-01 22:22
> "Cboe wouldn’t seek protected-quote status for orders displayed on EDGA, the people said. Such a stance could help Cboe’s plan win SEC approval."

Mea Culpa: Did not see that at the end of the article. It seems like CBOE is behaving honestly here.

> Could you elaborate on the equivalence of the delay and last look for a liquidity provider?

Yeah, echoing bullero, my understanding is that the delay only applies to liquidity taking orders. Basically, MMs get to see 4ms into the future. It's like a free option, which is basically the same thing that last-look provides.

E.g. if the index futures tick down, liquidity providers at other exchanges will try to pull their bids right away. But with a taker-only delay, the providers can keep their bids alive for 3.9ms. If the futures tick back, then keep the order alive and retain priority. If they don't, then cancel. You'll still get out faster than the market sells get through the speed bump.

Good questions outrank easy answers. -Paul Samuelson

Strange


Total Posts: 1434
Joined: Jun 2004
 
Posted: 2018-09-03 13:23
> Yeah, echoing bullero, my understanding is that the delay only applies to liquidity taking orders.
Indeed. I misinterpreted your statement "delay for liquidity providers but not takers is pretty much just last-look by another name" as "orders for makers will be delayed but not for takers".

I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'
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