NYSE Arca's Midpoint Order: Traders Get Selective New Pricing Perk
Published Date: 3/19/2025
Notice
Summary
NYSE Arca wants to add a new type of order called the Selective Midpoint Order to its trading rules. This change could affect traders using the exchange by giving them a smarter way to buy or sell at prices between the best bids and offers. The SEC is now reviewing this idea and will decide by March 30, 2025, whether to approve it, which might impact how trading works and possibly save money on trades.
Analyzed Economic Effects
4 provisions identified: 1 benefits, 0 costs, 3 mixed.
Exchange Proposes New Selective Midpoint Order
NYSE Arca proposes a new order type called the Selective Midpoint (SeMi) Order to replace the Discretionary Pegged Order (DPO). A SeMi would be a non-displayed order pegged to the Protected Best Bid and Offer (PBBO) and use the midpoint price or the order limit as its working price; the SEC is reviewing the change and will act by March 30, 2025. The Exchange says use of SeMi would be voluntary for market participants.
Optional Liquidity-Providing SeMi Rules
The Exchange would allow SeMi Orders to be optionally designated as Liquidity Providing, a feature not available for DPOs. A Liquidity Providing SeMi would only execute against resting orders that include a Non-Display Remove Modifier; if a resting contra-side order without that modifier is within the SeMi's discretionary range, the SeMi would be placed on the NYSE Arca Book and its discretionary range adjusted (including to one minimum price variation less aggressive than a displayed resting price).
Machine-Learning Stability Model Controls Trading
NYSE Arca proposes a Selective Midpoint Indicator (SMI), a gradient-boosting machine learning model, to identify unstable quotes; if the SMI deems a security unstable, SeMi Orders would be ineligible to trade at any price until stability returns. The Exchange would use individualized SMI models for at least 200 and up to 1,000 high-activity symbols, retrain models nightly using the prior three trading days, and compute features in real time using 83 Exchange-selected features from NYSE Arca Book data.
SEC Review Highlights Data and Fairness Concerns
The SEC instituted proceedings to consider whether to approve or disapprove the SeMi proposal and identified concerns raised in comments about the SMI's use of machine learning and non-displayed book data. Commenters questioned whether using non-displayed orders and staff-made judgment calls in the SMI is consistent with Sections 6(b)(5) and 6(b)(8) of the Securities Exchange Act, and the Commission invited further comment.
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