NYSE Arca proposes to introduce new order types

Maria Nikolova

The Exchange proposes to add order types that build on the existing Liquidity Adding Order and Post No Preference Order functionality to allow for repricing.

The United States Securities and Exchange Commission (SEC) is inviting comments on proposals by NYSE Arca, Inc. about introducing new order types. The Exchange proposes to amend Rules 6.62-O (Certain Types of Orders Defined) to add new order types.

Rule 6.62-O sets forth the order types available on the Exchange, including Liquidity Adding Orders (each an “ALO”) and PNP (Post No Preference) Orders.

Both of these order types give market participants control over how their orders interact with contra-side liquidity. More particularly, an ALO is a Limit Order that is rejected if it is marketable against the NBBO on arrival. A PNP Order is eligible to interact solely with interest on the Exchange, will not route, and will cancel if it locks or crosses the NBBO. The Exchange proposes to introduce order types that build on the existing ALO and PNP Order functionality to allow for repricing (rather than cancellation or rejection of orders) under certain circumstances.

  • Repricing ALO (RALO)

The Exchange proposes to give market participants the option to send in ALOs designated as RALO. A RALO would be repriced (rather than be rejected) if it would either trade as the liquidity taker or display at a price that locks or crosses any interest on the Exchange or the NBBO. An incoming RALO to buy (sell) that would trade with any displayed or undisplayed sell (buy) interest on the Consolidated Book would be displayed at a price one minimum price variation (MPV) below (above) such sell (buy) interest.

An incoming RALO to buy (sell) that is not marketable against interest in the Consolidated Book but that would lock or cross the NBO (NBB) would be displayed at a price that is one MPV below (above) the NBO (NBB). If the sell (buy) interest in the Consolidated Book or NBO (NBB) moves up (down), the display price of the RALO to buy (sell) and the undisplayed price at which it is eligible to trade would be continuously adjusted, up (down) to the RALO’s limit price.

Put otherwise, to avoid trading as the liquidity taker, the RALO would be displayed at a price one MPV away from the best-priced contra-side interest, whether on the Exchange or an away market, and its display price would continue to be adjusted up to its limit price.

  • Repricing PNP Order (RPNP)

Under the Exchange’s proposal, market participants will be given the option to send in PNP Orders as RPNP. An RPNP is a PNP Order that would be repriced (rather than be cancelled after trading with interest in the Consolidated Book) if it would lock or cross the NBBO. In particular, an RPNP to buy (sell) that would lock or cross the NBO (NBB) would be displayed at a price one MPV below (above) the NBO (NBB). If the NBO (NBB) moves up (down), the display price of the RPNP to buy (sell) and the undisplayed price at which it is eligible to trade would be continuously adjusted, up (down) to the limit price of the RPNP.

The Exchange believes that the proposed RALO and RPNP would remove impediments to and perfect the mechanism of a free and open market and a national market system because the proposed order types would offer market participants greater flexibility and control over how their orders interact with liquidity on the Exchange.

NYSE Arca also notes that this proposal allows market participants to provide and access greater liquidity on the Exchange, thus benefiting Exchange members. Both proposed order types provide a means to display such orders at prices that are designed to maximize their opportunities for execution. Specifically, allowing any eligible RALO and RPNP to be repriced and potentially trade at multiple price points would improve the mechanism of price discovery, the Exchange says.

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