The International Securities Exchange (ISE) has introduced a new order type, implied orders, which it claims will significantly enhance the execution of multi-legged strategy orders on its exchange.
Multi-legged strategies are often used to help hedge risk, especially when trading higher priced stocks. Previously, multi-legged strategies operated on the ISE’s complex order book, but were not accessible to participants on the regular order book.
Now the ISE has introduced implied orders, also known as legging orders, market participants can trade the individual legs from the complex order book on the bourse's regular order book for the first time. An implied order is automatically created if the limit price of a multi-legged order can match or improve on the ISE best bid or offer when each leg is paired against a resting order or quote. For the system to generate an implied order, the net price of the multi-legged order must be satisfied when both legs are filled on the regular book.
Boris Ilyevsky, managing director of ISE’s options exchange, explained that the benefits would primarily consist of increased liquidity on the ISE’s regular order book.
“This will increase liquidity for all market participants, improving the chances of getting a fill,” he told theTRADEnews.com. “It will create a better, tighter market with narrower spreads by encouraging greater interaction with the complex order book.”
Meanwhile, Nasdaq OMX is planning to launch Nasdaq OMX BX Options, a platform designed to reward retail customers who wish to access liquidity and provide market makers with additional opportunities to provide liquidity in June, pending regulatory approval.
BX Options will have a hybrid allocation model, directed order flow for market participants and a new price improvement auction. Users will benefit from microsecond trading speeds, bulk quoting, rapid fire risk protection and low-latency protocols. BX Options will use the same architecture, data centre and INET technology as other Nasdaq OMX platforms.
Nasdaq OMX will give market participants the ability to choose three different market models for US equity options trading. BX Options will reward retail customers for accessing liquidity, PHLX will offer electronic and floor-based trading with a traditional allocation model and NOM will provide investors a fully electronic market with a price/time allocation model. Nasdaq OMX will use the options trading licence from its 2007 acquisition of the former Boston Stock Exchange to launch BX Options.