CEO calls for market-wide purge of order types
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[July 09, 2014]
By Sarah N. Lynch
WASHINGTON (Reuters) - In a
perfect world, stock exchanges would collectively agree
to ban order types that critics allege create complexity
and may give certain traders unfair advantages,
Intercontinental Exchange Group chief executive Jeffrey
Sprecher told lawmakers on Tuesday.
"I am uncomfortable with having all of these order types. I don't
know why we have them. And I have started to unilaterally eliminate
them," said Sprecher, whose company owns and operates the New York
"I hope other exchange leaders will follow my lead. I'd like to get
us all working together to eliminate these types. I would be happy
if we can do it as a private-sector initiative. I would be happy if
the (Securities and Exchange Commission) orders us to get rid of
them. I would be happy if Congress took action," he added.
Sprecher's concerns about order types touched on one of many equity
market structure issues discussed at a U.S. Senate Banking Committee
hearing on Tuesday convened to explore the role of high-speed
trading, and whether new rules are needed to improve how the markets
Order types allow investors to stipulate certain conditions for how
their stock orders are executed, and are an area policymakers have
been scrutinizing. The major exchanges have dozens of order types,
though many offer slight variations.
Although exchanges must get regulatory approval from the Securities
and Exchange Commission before offering new order types, some
critics have questioned whether more sophisticated investors,
including high-speed traders, have been able to better grasp how
order types work and use them to gain an edge over less savvy
The SEC has been investigating how order types are being used, and
whether the disclosures exchanges provide about how order types work
are truly aligned with the way they operate in the marketplace.
Recently, SEC Chair Mary Jo White asked all of the exchanges,
including NYSE, Nasdaq OMX and BATS Global Markets, to conduct a
broad review of their order types.
Sprecher's comments came in response to a question from Ohio
Democratic Senator Sherrod Brown, who said he was concerned that
NYSE "continues to allow high-frequency traders to use some
predatory order types."
Even before Wednesday's hearing NYSE had already taken steps to
address concerns about order types, including eliminating 15 types
and imposing a six-month moratorium on permitting any "new or novel"
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But Sprecher told Brown it would not be practical to get rid of all
types, in part because it would make the exchange less competitive.
BATS Global Markets, for instance, offers numerous order types.
"I am trying to balance cleaning up my own house," Sprecher told
lawmakers. "I live in a glass house. I am trying to clean it up
before I criticize others. At the same time, I can't make the New
York Stock Exchange go to zero."
BATS CEO Joseph Ratterman, who also testified Wednesday, told
Reuters on the sidelines of the hearing that his company routinely
evaluates its order types and prunes certain ones, but was skeptical
the measures suggested by Sprecher could work.
That's because order types are driven by both SEC rules and by
demand from investors to have some level of control over how their
electronic orders are executed, he said.
As long as those two factors are in play, he said, "those orders are
going to stay in existence on our exchange."
(Reporting by Sarah N. Lynch; additional reporting by Herbert Lash
in New York; Editing by Meredith Mazzilli)
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