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Joanna Fields
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Navigating Cybersecurity on a Stretch of "Regulatory Rapids"

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December 18, 2007

CHX Enables Routing Out

By Nina Mehta

The Chicago Stock Exchange, which currently rejects orders it cannot fill, intends to facilitate participants' ability to route to other markets. But in lieu of routing those orders itself, CHX has decided to enable firms to select their routing provider.

"Firms can choose," said David Herron, chief executive of the CHX. "Instead of having an order rejected back to them, they can forward it to a broker-dealer that offers routing." He said some firms don't want unfilled orders returned.

Some of the firms that might offer outbound routing from the Chicago are Order Execution Services, Goldman Sachs Execution & Clearing, Citi Lava, Selero and Lek Securities, according to Herron.

In not offering outbound routing, the CHX is an anomaly among exchanges. When the Intermarket Trading System was shut down earlier this year, all exchanges except for the Chicago entered into routing agreements with broker-dealers. The CHX said its customers would prefer to handle their own routing for orders that would otherwise trade through better prices elsewhere.

Now, Herron said, some retail brokers are less keen on that set-up. CHX's new capability will allow introducing brokers formerly CHX floor brokersto again offer outbound routing to order-sending firms. Floor brokers and specialists previously used ITS to route orders to other markets, before Chicago remade itself along the lines of an ECN.

Herron said CHX's role would be to facilitate communication between firms. CHX, which does not have a broker-dealer subsidiary, would not be involved in trades routed out. This arrangement is subject to regulatory approval.