3rd UPDATE: Nasdaq, BATS To Withdraw Flash Order Types
06 Agosto 2009 - 10:10PM
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.
The Securities and Exchange Commission is considering a ban on
so-called "flash" order types, which gives some traders a look at
stock orders before they're routed out to other exchanges.
But Nasdaq OMX said in a brief statement Thursday 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' 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.
Representatives of Direct Edge, who have defended the practice
as boosting overall liquidity and improving prices for investors,
weren't immediately available for comment.
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 were recently up 38 cents at $22.04.
-By Kevin Kingsbury, Dow Jones Newswires; 212-416-2354;
kevin.kingsbury@dowjones.com; and Jacob Bunge, Dow Jones Newswires;
312-750-4117; jacob.bunge@dowjones.com