Nasdaq OMX and BATS Exchange have committed to withdraw flash order types from their US exchanges following increasing expectations of regulatory intervention by the US Securities and Exchange Commission (SEC).
With effect from 1 September, BATS Exchange will cease offering its BATS Optional Liquidity Technology (BOLT) order type and Nasdaq will also discontinue use of flash order types.
Flash order types, which typically display unfilled orders on a venue for 25 milliseconds before routing elsewhere, have attracted criticism that they contravene the spirit of Regulation NMS’s order protection rule, which compels immediate routing to the venue with the best price.
US equity trading platform Direct Edge’s Enhanced Liquidity Provider (ELP) programme also offers flash order functionality. CEO William O’Brien has so far defended flash orders, recently telling members in a letter that “ELP functionality is an important choice for many of our clients”.
The SEC had been widely expected to introduce new regulations to outlaw or at least temper the use of flash order types. On Tuesday, New York senator Charles Schumer said SEC chairman Mary Schapiro had committed to an “imminent” ban.
In a statement, Nasdaq OMX said, “We appreciate that chairman Schapiro and the commissioners will assume overall leadership for the industry to conduct a comprehensive review of all issues related to flash orders. We recognise the SEC’s rule-making process will take time, yet as an exchange we have the ability to move on our own. We respectfully call on other markets offering similar functionality to make the same decision.”
BATS chairman Joe Ratterman, who had recommended an industry review of flash orders on 7 July, also called on other venues to withdraw flash order types voluntarily.