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Nasdaq asks SEC for speed bump to protect retail traders

25 November 2016  |  4534 views  |  0 NASDAQ Trading screen

The US-based exchange has applied to the Securities and Exchanges Commission (SEC) for an extended life priority order attribute, or speed bump, in an effort to level the playing field for long-term retail traders who feel they have been losing out to high speed frequency traders, reports the Financial Times.

The speed bump would in effect create a delay of one second during which time traders would be unable to cancel their orders.
 
Nasdaq's application has been inspired by the launch earlier this year of IEX, a new exchange which has a delay of 350 microseconds.
 
The new exchange, which was backed by the protagonists of the best selling book Flash Boys, written by Michael Lewis, highlighted the concern that US equity markets have become skewed in favour of aggressive, short-term, high frequency traders (HFTs) and against long-term and retail investors unable to keep up with the expensive technology employed by HFTs.
 
As trading has become more competitive, volume sizes have become smaller and more orders are subject to cancellation, argue the critics of HFT. Consequently long-term investors have found they are unable to access bids and offers that have fallen lower down the order book log and are therefore unable to fulfil their long-standing orders. Meanwhile the supporters of HFT argue that these participants create much-needed liquidity.
 
A number of incumbent exchanges opposed the launch of IEX, however, Nasdaq and other exchanges, such as the Chicago Stock Exchange, have subesquently looked to introduce their own speed bumps.
 
"Nasdaq believes that promoting displayed orders with longer time horizons will enhance the market so that it works for a wider array of marekt participants and will benefit publicly-traded companies by promoting long-term investment in corproate securities, whether listed on Nasdaq or other exchanges," reads the application to the SEC.

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