Wall St. preemptively halts flash orders

Amy Scott Aug 7, 2009
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Wall St. preemptively halts flash orders

Amy Scott Aug 7, 2009
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KAI RYSSDAL: Imagine what a deal it would be if you could get a look at an incoming stock trade just before it hits the market. Pretty neat advantage to have, no? Turns out those deals do exist in real life. They’re called “flash orders.” And there’s a push on in Washington to ban them. The SEC says its taking a look at it. But two stock exchanges have beaten regulators to the punch. The Nasdaq and the electronic exchange BATS say they’ll both stop offering flash orders as of next month.

Marketplace’s Amy Scott reports.


Amy Scott: Flash orders let members of some electronic stock exchanges see orders to buy or sell stock milliseconds before those orders go out to the public.

Joe Ratterman is CEO of BATS Exchange. BATS started offering the service to its member brokerage firms in early June. But Ratterman says the recent controversy over the practice was threatening investor confidence in the markets.

Joe Ratterman: The more we watched the debate circulate up to the public media, rather than in the regulatory structure where it belongs, we felt like we were effectively allowing a disservice to happen to the industry.

Ratterman says BATS may reintroduce flash orders in some form if the SEC doesn’t ban the practice. The Commission is looking into several aspects of electronic trading that critics say leave some investors at a disadvantage.

David Leinweber wrote the book “Nerds on Wall Street,” about electronic markets. He says BATS and Nasdaq are making a smart move.

David Leinweber: You look a lot better stopping on your own, rather than being told to stop, or worse, penalized for doing it.

There may be another reason Nasdaq and BATS dropped flash orders.

Justin Schack is with Rosenblatt Securities. He says the two exchanges started offering the service only reluctantly, after flash orders helped a competitor called Direct Edge win market share.

Justin Schack: And that’s I think why you saw Nasdaq and BATS pretty quickly give in, once you there started to be some pressure coming from Washington and from different parts of the industry on this and say, “You know what, we’re going to get rid of it.” And now that puts all the pressure on Direct Edge to handle all this criticism on its own.

Direct Edge says it plans to keep offering its form of flash orders to preserve the flexibility it gives customers.

In New York, I’m Amy Scott for Marketplace.

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