4th UPDATE: Nasdaq, BATS To Withdraw Flash Order Types
07 Agosto 2009 - 1:45AM
Dow Jones News
Stock market operators Nasdaq OMX Group Inc. (NDAQ) and BATS
Exchange said Thursday they will stop offering flash order types on
Sept. 1 as controversy about the practice continues to build.
Direct Edge, a rival cash equities platform that has been a
proponent of the practice, said it planned to maintain its current
market structure, though a spokesman said it would withdraw a
proposal for a new flash order type.
The Securities and Exchange Commission is considering a ban on
flash order types, which give some traders a look at stock orders
before they're routed out to other exchanges.
But Nasdaq OMX said in a brief statement Thursday that it won't
wait for the regulator to make its move.
"We respectfully call on other markets offering similar
functionality to make the same decision," the exchange operator
added.
BATS, based in Kansas City, Mo., quickly followed suit with its
own announcement.
Spokesman Randy Williams said in a written statement that the
exchange "is pleased that Nasdaq is heeding our call to eliminate
flash orders. As the first user of flash order types to call for
their review, back on July 7th, we plan to back up our words by
voluntarily withdrawing BOLT," BATS's version of flash orders.
The outcry against flash orders burst into public view last
month after Sen. Charles Schumer, D-N.Y., told the SEC in a letter
he would move to limit flash orders - which have picked up in
recent months - if the commission didn't.
The flash strategy takes a stock order, after it has been
checked against a market's main order book, and "flashes" it to a
select group of participants, who have a fraction of a second to
act on the order before it is routed to other exchanges to be
filled.
The practice has helped exchanges build market share but has
come under fire from critics who allege it gives some participants
an unfair advantage.
Nasdaq OMX introduced flash orders in June, around the same time
rival BATS Exchange implemented its own version of the practice.
Both cited competitive pressures from upstart cash equities
platform Direct Edge, which has used a version of flash orders to
help fuel its rise to become the third-largest U.S. stock market
operator.
Direct Edge, whose chief executive has defended the practice as
boosting overall liquidity and improving prices for investors, said
late Thursday that the Jersey City-based market operator would
withdraw a proposal for a new flash order type, called "Flare,"
submitted to the SEC in July.
However, Direct Edge will continue running its ELP program, the
model on which Nasdaq OMX and BATS based their flash
strategies.
"Direct Edge supports the SEC's broad approach to the myriad
issues that have been the focus of recent attention and will, of
course, abide by any SEC decisions regarding this or any other
matter," Direct Edge spokesman Rafi Reguer said in a statement.
NYSE Euronext (NYX), which operates the New York Stock Exchange,
has been a vocal critic of flash orders, as several of its rivals
have adopted some form of the trading method and have gained market
share.
While the introduction of flash orders has helped boost BATS'
market share, Nasdaq OMX hasn't seen much of an impact.
On a conference call discussing second-quarter earnings, Nasdaq
OMX Chief Executive Bob Greifeld said Thursday that volume related
to flash orders "is currently immaterial to U.S. transaction
business, to Nasdaq OMX, and it will be immaterial in the
future."
Nasdaq OMX has seen its share of the U.S. cash equities market
slide this year, falling from 29% in January to 22% last month,
though it has stabilized in recent months.
The company cited the drop in business as it reported a 31%
decline in second-quarter profits Thursday.
Nasdaq OMX shares closed 1.6% higher at $22.00.
-By Kevin Kingsbury Jacob Bunge, Dow Jones Newswires;
212-416-2354; kevin.kingsbury@dowjones.com