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Enough is Enough

Traders Magazine Online News, November 14, 2017

Eric Stockland

On Thursday, the Wall Street Journal reported on a controversy surrounding Intellicator, a proposed Nasdaq options data service that would leak sensitive trading information that investors assume would be private.

What the article does not say is that selling out investors’ data to traders looking for an edge is a practice that’s been going on for years and is still happening today.

Nasdaq Velocity and Forces

For 11 years -up until two weeks ago - Nasdaq sold data feeds called “Market Velocity” and “Market Forces” as part of a “Market Analytics Data Package.” They marketed these feeds as offering “unique data that doesn’t show up in a traditional quote feed” which could be used to “detect surges in trading interest before trades occur” (emphasis added).[1] These feeds didn’t just include a new packaging of public data. According to Nasdaq’s website, they incorporated “displayable orders and non-display orders,”[1] including indications of routable orders and even unfilled IOC (immediate-or-cancel) orders - information that would otherwise be deemed private.

Non-displayed orders are meant to be hidden from view. IOC orders in particular are designed to be executed immediately or cancelled back to the sender without leaving a footprint behind. Nasdaq violated those basic principles for a quick buck.

For 11 years, Velocity and Forces exposed investors and brokers to potential electronic front-running.

Nasdaq Pathfinders

Nasdaq’s “Market Pathfinders” data product—which is still on the market—is described as an equity market data feed that tracks and discloses the number of shares purchased and sold by select participants with the goal of “monitor[ing] the buying and selling of market participants (‘pathfinders’) to identify those that are aggressively taking a position over an extended period of time.”[2]

To minimize market impact, investors do everything they can to disguise their intentions?—?including breaking up large orders into smaller ones so they aren’t obviously coming from a large investor.

Pathfinders directly undermines those efforts. It reassembles and sells those signals of large interest, at the expense of large traders and investors.

Covering their Tracks

In late October, Nasdaq removed Velocity and Forces from their website and withdrew the feed with notice to the SEC. Some may argue that since they are off the market, the book is closed on those feeds.

But they didn’t disappear because Nasdaq suddenly saw the light.

Nasdaq only removed Velocity and Forces after industry participants who came across the feeds started asking questions. Indeed, Nasdaq even notes in its rule filing withdrawing the product that “customers expressed concern that data contained in the product may reveal too much information about the trading strategies of participants on the Exchange.”

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