SEC rejects Nasdaq's benchmark order plan

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The Securities and Exchange Commission (SEC) rejected a plan by the Nasdaq Stock Market to create "benchmark" orders that would compete with services offered by competing broker-dealers.

According to news reports, the agency's Division of Trading and Markets disapproved the plan, saying that it failed "to protect investors and the public interest, and not to permit unfair discrimination between customers, issuers, brokers, or dealers" and rules not to "impose any burden on competition not necessary.''

Traders Magazine report's that:


"Under the plan, proposed last May, Nasdaq wanted to offer its members three "benchmark" order types that would allow customers to manage large orders by generating series of "child orders'' to try and hit desired results during a trading day. The end result would achieve one of three common trading benchmarks in a specific stock, for a given period: the Volume Weighted Average Price ("VWAP"), the Time Weighted Average Price ("TWAP"), or a Percent of Volume ("POV") for that stock.9

The splitting of parent orders into child orders, as is typical with high-frequency trading, would offer Nasdaq's "members the ability to enter a single order in a single security seeking to match the performance of a selected benchmark over a pre-determined period of time,'' Nasdaq said in its original with the SEC.

SEC deputy secretary Kevin M. O'Neill said the agency was not confident that the child orders "would be subject to adequate pre-trade risk checks," adding that the plan failed to indicate 'how or whether pre-trade controls would be applied to Child Orders generated by the Application."

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