Nasdaq, the world’s second largest stock exchange, has proposed the introduction of a new order attribute that will act as a “speed bump” for high frequency traders and will benefit the retail traders and the long-term investors, reports Financial Times.
In a letter to the US regulator, the Securities and Exchange Commission (SEC), the exchange operator lays out its plans to give priority to retail orders visible to the whole market, when traders agree not to cancel them for at least one second.
One second in trading is a very long time and many high-frequency trading firms enter and cancel thousands of orders in fractions of seconds.
According to Nasdaq, this initiative would address the needs of the long-term investors. Initially, the new plan will apply only to retail traders, but later will apply to all market participants. If implemented, Nasdaq will execute the “extended life” before competing orders at the same price.
“Nasdaq believes that promoting displayed orders with longer time horizons will enhance the market so that it works for a wider array of market participants, and will benefit publicly traded companies by promoting long-term investment in corporate securities, whether listed on Nasdaq or other exchanges,” the operator said in its letter to SEC, quoted by Financial Times.
Nasdaq’s move is the latest in the attempt of some of the major stock markets operators to respond to the move of the newcomer IEX. It got its stock exchange license in June and imposes a delay, or a “speed bump” of 350 microseconds, or millionths of a second, on all incoming orders in order to thwart certain predatory high-speed trading strategies.
Unlike IEX’s “speed bump”, which applies to all, Nasdaq’s feature will be optional and can be chosen by traders every time they place an order.
Nasdaq’s proposal is subject to approval from SEC. According to The Wall Street Journal, if approved, the new feature will be implemented in the first half of 2017.