10.28.2022
Brett Harrison, advisor to crypto exchange FTX and previously president of FTX US, has recommended that crypto exchanges introduce the midpoint peg order type, which is used in traditional equity markets, to help institutional and high-volume traders.
2/ The midpoint peg order is guaranteed to be executed at a price no worse than the midpoint of the best bid and offer, and also no worse than the limit price if one is entered. The order itself is hidden and therefore does not show up in the order book.
— Brett Harrison (@BrettHarrison88) October 27, 2022
4/ These are supported by nearly all NMS exchanges (e.g. IEX: https://t.co/PZLJrzRLJS). There are more advanced parameters for pegs as well, such as pegging to same-side or opposite-side instead of midpoint, and allowing offsets.
— Brett Harrison (@BrettHarrison88) October 27, 2022
6/ The above makes the order type a good fit for crypto markets. One potential concern is less order book transparency, as midpoint liquidity is often hidden. Although crypto exchanges could innovate by allowing for midpoint liquidity to be displayed to data subscribers.
— Brett Harrison (@BrettHarrison88) October 27, 2022
7/ Midpoint peg orders would help institutional and high volume traders provide liquidity at top-of-book while minimizing their risk due to not only volatility, but also the randomized latency occurring at cloud-based matching engines. Why are they missing?
— Brett Harrison (@BrettHarrison88) October 27, 2022
Joe Sakuzzi, partner at institutional agency broker Themis Trading:
We frequently use mid-points for our equity trading. Most of the time use in conjunction with a minimum fill quantity.
— Joe Saluzzi (@JoeSaluzzi) October 27, 2022
Non-displayed orders are complex, pricing would not be obvious etc. But given that lots of crypto instruments are now tick-wide, why isn’t the much simpler displayed primary peg available anywhere?
— picotrades (@picotrades) October 27, 2022
Agreed but most “complex” order types that are used in tradfi would make more sense if there was an NBBO equivalent in crypto market structure.
— BidOnly.eth (@cash_mgmt) October 27, 2022
The tick size in most crypto order books is much smaller in notional terms than most equity names. And maker/taker fee model has more cost asymmetry than most crypto fee tiers. Also Reg NMS gives more trust to pricing off bid/ask on one exchange.
— Scott Knudsen (@SMKnudsen) October 27, 2022
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