Thanks to the 2010 Dodd-Frank Wall Street Reform Act, all new order types filed with the Securities and Exchange Commission now must get reviewed within a two-month period.
Once a “novel” order type gets filed for approval by an exchange under Section 19(b)(1) of the Securities Exchange Act of 1934, the federal regulator has 15 days to put the proposal into the Federal Register. And then, 45 days to collect industry comment, evaluate it and either approve it or put it into a ‘disapproval’ process.
That doesn’t mean it will get disapproved. And, through the end of 2012, no proposed rule had been rejected, ultimately.
But the proposal gets additional scrutiny, according to regulators, and its workings must get additional description and support, on why it is in keeping with the operation of fair and orderly markets.
Exchanges are required to show that their proposals are “fully and fairly disclosed,’’ give examples of how they work under various market conditions, what priority is given an order that is executed under the new order type (i.e., who goes to the front of the line), what happens when prices move, and whether the order is “taking” liquidity out of the market, in so doing.
If a new order type has been approved by the SEC, other exchanges can apply to have copy-cat order types approved with “immediate effect.”
But any new distinctly new type must be clearly described, subject to public comment over roughly three weeks times and obtain SEC approval, after another three weeks.
Market participants get alerted to new rule filings on the SEC’s News Digest. Subscriptions to the digest can be started from the SEC’s home page (http://www.sec.gov), by entering an email address in the lower right-hand corner and checking off either the News Digest option or the box for Public Company Accounting Oversight Board and Self-Regulatory Organizations Rulemaking notices.
