BATS Exchange Would Support Ban On 'Flash' Orders - CEO
July 30 2009 - 1:48PM
Dow Jones News
The top executive of electronic equities market BATS Exchange
said Thursday that he would support a ban on so-called flash order
types, which are under fire for creating an uneven playing field
for traders and investors.
Kansas City, Mo.-based BATS implemented a version of the trading
practice in June, citing competitive pressure from rivals, but
Chief Executive Joseph Ratterman said he had continued concerns
around the issue.
"There are valid reasons to review, debate and even ban flashed
orders," Ratterman wrote in a newsletter to clients.
"If a ban would relieve pressure and give our industry the pause
necessary to review and reconsider flashed order functionality,
then let's collectively go that route," he said.
His comments join criticism of the practice from the heads of
NYSE Euronext (NYX) and Nasdaq OMX Group Inc. (NDAQ), who this week
called for the flash-type practice to end.
At issue are order types that display stock orders to
off-exchange liquidity pools before they are sent out to the
broader market to be filled.
The practice was developed a few years ago at the Chicago Stock
Exchange and approved by the Securities and Exchange
Commission.
Since then, New Jersey-based Direct Edge has developed its own
version that has helped it grow into the third-largest U.S.
equities platform; BATS and Nasdaq OMX Group begrudgingly followed
suit in June, while NYSE Euronext took the issue to the SEC.
The debate centers on whether participants in those off-exchange
liquidity pools get an unfair advantage by seeing orders before the
rest of the market.
Ratterman argued Thursday that it is disingenuous to suggest
that the orders, which are widely published to the full membership
of an exchange before they are sent to the private liquidity pool,
create illegal front-running opportunities.
He also noted that the practice could provide price improvement
for investors, which they might not get if orders were routed to
outside exchanges.
-By Jacob Bunge, Dow Jones Newswires; (312) 750 4117;
jacob.bunge@dowjones.com