10.30.2017

SEC Stops CHX Speed Bump Implementation

Not so fast, CHX.

After getting the go-ahead from the staff charged with examining its speed bump proposal last week, senior leadership at the Securities and Exchange Commission stepping in and stopped the bourse from implementing the 350 ms delay on certain orders, according to a report in the Wall Street Journal.

The speed bump is designed to help make CHX more competitive with other exchanges that have or are considering slowing down some trading to weed out predatory traders who use hyper-fast trading strategies and technology to execute orders ahead of most institutions and retail investors.

On October 19th the regulator’s research staff approved a pilot program for the CHX’s  Liquidity Enhancing Access Delayed (LEAD). The pilot program will be implemented on February 1, 2018, and has a timeframe of 24 months, during which time CHX will collect and publicly disclose data on LEAD’s market impact.

LEAD was first announced in February of this year, taking the place of an initial speed bump proposal called Liquidity Taking Access Delay (LTAD). LEAD will implement a 350 microsecond speed bump that will apply to all orders, except for liquidity providing orders submitted by LEAD Market Makers (LMMs), a new class of market maker subject to heightened quoting and trading obligations on a security-by-security basis. The speed bump will provide LMMs with an unprecedented risk management tool to protect against predatory trading strategies, such as latency arbitrage, which leverage microsecond speed advantages to pick-off stale quotes during times of market transition. By deemphasizing speed as a key to trading success, LEAD will encourage LMMs to display larger orders at aggressive prices, which will, in turn, enhance displayed liquidity and price discovery to the benefit of the investing public.

In a blog posting CHX defined “latency arbitrage” as “the practice of exploiting disparities in the price of a security or related securities that are being traded in different markets by taking advantage of the time it takes to access and respond to symmetric public information.”

 

Related articles

  1. The venue is the first national regulated exchange offering T+0 settlement.

  2. Machines 'Learn' Liquidity

    There is a need for institutional-grade liquidity in the digital asset market.

  3. Basel Committee Consults on Interest-Rate Risk

    Since the start of 2022 liquidity has shifted to SOFR-based derivatives at an accelerated pace.

  4. Outlook 2016: Alexander Lehmann, LSEG

    LSEG's derivatives venue is closing on 28 January after more than five years of operations.

  5. The regulator said it is considering modernizing its rules related to the definition of an exchange.