Flash Orders Under Attack ?
BY CHRISTINE BIRKNER
Published 1/1/2010??
Options leaders are speaking out against an SEC proposal that would ban flash orders on equities and options. On Sept. 17, the SEC proposed the rule amendment that would eliminate the flash order exception from Rule 602 of Regulation NMS under the Securities Exchange Act of 1934. According to an SEC release, if adopted, the proposed amendment would prohibit all markets, including equity exchanges, options exchanges, and alternative trading systems, from displaying marketable flash orders.
Options exchanges flash orders to their market makers before routing them to another exchange based on the national best bid offer (NBBO) price. That way the customer order could be filled more cheaply than if it were routed to an exchange that had a ?maker/taker? fee structure. Also, the flash order rules may restrict or even eliminate price improvement auctions in the options market, according to Mark Longo of TheOptionsInsider.com, who says the SEC has been vague on the issue. ?If price improvement auctions are restricted or eliminated as a result of this crackdown, it would be a terrible development for options customers,? he says.