BATS moves to stem hidden order leakage concerns

BATS Exchange, a US equity trading venue, will make changes to its post-trade data feed to enable customers to choose how their order IDs are handled, in response to fears over information leakage that surfaced in the US and European markets recently.

Buy-side investors have grown increasingly concerned that order IDs disseminated by markets in their post-trade data feeds can be taken advantage of by predatory traders.

In particular, order IDs for hidden order types, such as iceberg orders, use the same identifier for each partial execution of a particular order. Traders feared that this information could be accumulated and used against them.

Responding to these concerns, BATS has said it is willing to make changes to the post-trade data feeds for its US exchange and both its lit and dark pan-European multilateral trading facilities (MTFs).

The exchange operator will introduce a port-level configuration choice that allows brokers to give their buy-side customers the option on whether or not to keep their order IDs in public post-trade data. “This solution ultimately provides customers with the flexibility to choose how they want to interact with BATS platforms, both in the US and Europe,” read the BATS newsletter.

Buy-side concerns were raised after US agency brokerage Themis Trading published a white paper titled ‘Data Theft on Wall Street’ released on 11 May. “Most institutional and retail investors have no idea that the private trade information they are entrusting to the market centres is being made public by the exchanges,” read the paper. “The exchanges are not making this clear to their clients, but instead are actively broadcasting the information to the [high-frequency traders] in order to court their order flow.”

Fears over information leakage hit the dark pools operated by BATS Europe and rival MTF Chi-X Europe, which suffered significant declines on Thursday last week. Turquoise, the MTF owned by the London Stock Exchange, sent out a blog last Wednesday emphasising that it did not reveal order ID information, and experienced a surge in trading on its dark midpoint book the day after. Turquoise has retained its position as the biggest European dark pool this week, overtaking Chi-X’s Chi-Delta.

“Order IDs are a mechanism for traders to understand how their specific orders are behaving at the exchange,” Joe Ratterman, CEO, BATS Exchange, told “There is no way of using this information to identify customers or even the direction of the trade; all you get is an idea of previous executions. It’s a bit of a stretch to suggest that by using an order ID you have seen before, you are able to infer any information relating to what is on the order book. All you know is that an execution happened.”