More exchanges move to reduce quote cancellations
We've suggested before that the financial services industry would be wise to self-regulate in some areas to head off formal reform legislation.
When it come to cancelled orders, it's nice to see exchanges taking the initiative. Direct Edge for example has plans to introduce a message efficiency incentive program that will likely start in May. The plan will reduce liquidity rebates for traders with a message-to-trade ratio of more than 100-to one.
According to Finextra, Nasdaq OMX is planning a similar measure, which would penalize traders similarly based on the messgate-to-trade ratio.
Can these programs work?
For an answer we turn to the Atlanta-based IntercontinentalExchange, which has touted the success of a year-old message-reducing policy. The new policy essentially sets up new weighted volume ratio (WVR) benchmarks that incentivizes quotes near the best bid and order.
Since the introduction of the new policy, the company says its WVR has declined by 63 percent in ICE Futures U.S. markets, 19 percent in ICE Futures Europe markets, and 53 percent in ICE's OTC markets. Furthermore, the number of violations of the High Frequency Messaging Policy's highest thresholds dropped by 93 percent.
These sorts of initiatives are far more palatable to industry executives than drastic solutions like a formal tax on canceled orders, which some politicians have mulled. In any case, regulators just might make a decisive push to regulate high-frequency trading in 2012.
- here's the article
SEC sanctions Direct Edge for faulty systems, controls