Direct Edge has filed an application with the SEC to create a new order type that is pegged to the national best bid or best offer for a stock. Here’s a snapshot.
NAME: NBBO Offset Peg Order
FILING NUMBER: SR-EDGA-2012-44
COMING TO: EDGA and EDGX exchanges
WHEN: By end of year.
AIMED AT: Market makers
GIST: A member would place a limit order to buy or to sell that would be “pegged” to the price of a stock, but “offset” to a certain pre-set percentage higher or lower than the best bid or best offer.
HOW IT WOULD WORK: At any time the price of the order reached a defined limit or moved a specified number of percentage points away from a “designated percentage” of the price, toward the then-current best offer, for a buy order, or the best offer, for a sell order, the price of the “offset peg” order would be automatically adjusted by the system. The adjusting would push the price of the order back to the designated percentage away from the best bid or offer that the market maker or other member wants.
REQUIREMENT: This is a one-sided order. As a result, a member acting as a market maker would need to submit and maintain continuously both a bid and an offer using the order type. That is to comply with the exchange’s quotation requirements for market makers.
RELATED FUNCTION: Market makers now can identify themselves, using attributed quotes, says Bryan Christian, head of sales at Direct Edge. As a result,a market maker can use attribution as a tool for advertising that a particular order is its quote. Attribution helps members “make more educated trading decisions,’’ the exchange says.
