| That's an interesting read. For what it's worth, I think that IEX's "speed bump" is somewhere between a publicity stunt and a way to circumvent the regulatory rules about NBBO. (I imagine that IEX is not allowed to implement the speed bump in software because they are not allowed to pretend they don't know about an NBBO update. But if they use intentionally slow hardware, then they genuinely don't know about the updates.) The paper is a bit confusing: > Suppose at a given point in time, the market has been stable for awhile (meaning the best bid and offer prices have not changed for several milliseconds), and trading venue V has an accurate, up-to-date view of the NBBO in that symbol as $10.00 by $10.02. So the resting buy order is pegged to the midpoint price of $10.01. Now, a seller comes along and trades with all of the buy interest at $10.00, changing the best available bid to $9.99. The midpoint of the NBBO is now $10.005, but this information does not arrive at trading venue V instantaneously. There is a small window of time in which venue V still believes the midpoint is$ 10.01, so if a matching sell order arrives at venue V during this window, it can trade with the resting buy order at$10.01. This is bad news for the initiator of the resting order, because the NBBO has already changed in their favor, and this execution at $10.01 goes against the spirit of what a midpoint pegged order is intended to accomplish. Now I'm not a securities person and I don't really know the spirit of what the midpoint order is intended to accomplish. But if I were a serious trader and I had a buy order resting at $10.01, I would be rather annoyed at the beginning of this process -- a seller came and sold at $10.00, but my resting buy at $10.01 didn't match the seller. Similarly, the seller should be annoyed that they only got $10.00 and not $10.01. (I assume this only obeys the NBBO rules themselves because IEX midpoint pegs are non-displayed, but I am not an expert here.) There appears to be disagreement about what exactly a midpoint order is. Interactive Brokers says: > A pegged-to-midpoint order provides a means for traders to seek a price at the midpoint of the National Best Bid and Offer (NBBO). The price automatically adjusts to peg the midpoint as the markets move, to remain aggressive. For a buy order, your bid is pegged to the NBBO midpoint and the order price adjusts automatically to continue to peg the midpoint if the market moves. The price only adjusts to be more aggressive. If the market moves in the opposite direction, the order will execute. Which is rather different. Personally, I find fancy order types to make the market unnecessarily complicated, and I also think that Reg NMS and the whole NBBO mechanism is well meaning but actually mostly makes the market worse. |