SYNOPSIS: How BATS' Retail Price Improvement Works
Traders Magazine Online News, December 5, 2012
Here’s how BATS executives say they will be giving the individual investor a better deal.
BATS’ Retail Price Improvement program will execute incoming retail orders against non-displayed retail price improving orders and all other liquidity that improves the national best bid and offer (NBBO). The program uses a price/time priority model, but executes retail orders at multiple price levels to obtain the best results, Bats officials said.
Any BYX member is allowed to place retail price improvement (RPI) orders and is allowed to enter other non-displayed orders that, although not restricted to interaction with retail orders, may interact with retail orders if they provide price improvement.
BATs’ RPI orders, exchange officials explained in answer to a series of questions from Traders Magazine, would be defined as “non-displayed interest on the Exchange that is better protected than the protected NBB or protected NBB by at least $0.001 and that is identified as an RPI order in a manner prescribed by the exchange.”
BATS officials say a retail order is an agency order that originates with a natural person and can only be submitted by a retail member organization (RMO). That is provided that no charge is made to terms of the order governing price or side of the market and the order doesn’t originate from a trading algorithm or any other computerized methodology.
A Retail Member Organization is a firm that conducts retail business or handles retail orders on behalf of another broker-dealer. RMOs are organizations that have received a certification from the exchange to handle the retail flow.
Let’s say that RMO happens to be a wholesaler such as a Goldman Sachs or a Morgan Stanley with a lot of internal orders from institutional clients who are willing to give sub-penny price improvements to the retail order on the buy and sell. What happens then?
BATS will be receiving orders from any RMO that either has retail customers of its own or receives retail orders from other brokers--that will presumably include wholesalers.”
Indeed, improved prices, BATS officials say, can be submitted by any certified RMO.
Also, if the exchange has other resting liquidity that would improve an incoming retail order, the program will execute such liquidity against the retail order in price/time priority.
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