SEC invites comments on Nasdaq’s proposal to introduce “Midpoint Extended Life Order + Continuous Book”

Maria Nikolova

The M-ELO+CB is an order type that has all of the characteristics and attributes of a regular M-ELO, except that, it also may access additional sources of “M-ELO-like” liquidity on Nasdaq’s Continuous Book.

The United States Securities and Exchange Commission (SEC) is seeking feedback on plans by The Nasdaq Stock Market LLC to introduce the “Midpoint Extended Life Order + Continuous Book” or “M-ELO+CB” as a new Order Type on the Exchange.

Back in March 2018, the SEC approved Nasdaq’s proposal to adopt the Midpoint Extended Life Order or “M-ELO” as a new Order Type. An M-ELO is a non-displayed order that is available to all members but interacts only with other M-ELOs. It is priced at the midpoint between the National Best Bid and Offer (“NBBO”) and it does not become eligible for execution until it completes a one-half second holding period. Once the Holding Period elapses, an M-ELO becomes eligible for execution against other M-ELOs on a time-priority basis.

Since its implementation the Midpoint Extended Life Order Type has achieved its design expectations. Approximately 12 million shares transact as Midpoint Extended Life Orders a day, interacting only with other Midpoint Extended Life Orders thus avoiding interaction with Intermarket Sweep Orders, IOC Orders and other aggressively price Order Types.

M-ELO+CB is a variation on the M-ELO concept. That is, an M-ELO+CB is an Order Type that has all of the characteristics and attributes of a regular M-ELO, except that, in addition to executing against other M-ELO+CBs and M-ELOs, it also may access additional sources of “M-ELO-like” liquidity on Nasdaq’s Continuous Book.

If a member enters an M-ELO+CB, then the M-ELO+CB will be subject to the same one-half second Holding Period as a regular M-ELO. Upon expiration of the Holding Period, the M-ELO+CB will become available for execution, at the midpoint of the NBBO, against other M-ELOs and M-ELO+CBs. Additionally, it will become eligible to execute, again at the midpoint of the NBBO, against Non-Displayed Orders with Midpoint Pegging and Midpoint Peg Post-Only Orders if: (1) the Midpoint Orders have the Midpoint Trade Now Attribute enabled; (2) the Midpoint Order has rested on the Exchange’s Continuous Book for at least one-half second; (3) no other order is resting on the Continuous Book that has a more aggressive price than the current midpoint of the NBBO; and (4) the resting Midpoint Order fulfills any minimum quantity restriction that exists for the M-ELO+CB. The execution priority for the above orders will be ranked based on the time at which such orders become eligible to execute against each other.

M-ELO+CBs would be active only during Market Hours. M-ELO+CBs entered during Pre-Market Hours would be held by the system in time priority until Market Hours. M- ELO+CBs entered during Post-Market Hours would not be accepted by the system, and M- ELO+CBs remaining unexecuted after 4:00 p.m. ET would be cancelled by the system. M- ELO+CB Orders would not be eligible for the Exchange’s Opening, Halt, and Closing Crosses.

As part of the surveillance Nasdaq currently performs, M-ELO+CBs would be subject to real-time surveillance to determine if they are being abused by market participants. In addition, as is the case for ordinary M-ELOs, the Exchange will monitor the use of M-ELO+CBs with the intent to apply additional measures, as necessary, to ensure their usage is appropriately tied to the intent of the Order Type. This monitoring may include metrics tied to participant behavior, such as the percentage of M-ELO+CBs that are cancelled prior to the completion of the Holding Period, the average duration of M-ELO+CBs, and the percentage of M-ELO+CBs where the NBBO midpoint is within the limit price when received.

  • Electronic comments may be submitted via the Commission’s Internet comment form; or via an e-mail to [email protected]. Please include File Number SR-NASDAQ-2019-048 on the subject line.
  • Paper comments should be sent in triplicate to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090.

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