Notice of Proposed Changes - Post Only Order Feature and Self-Trade Prevention - TSX Inc.
TSX Inc. (TSX) has announced its proposal to introduce two new order features on March 1, 2010. The order features are described below. This Notice of Proposed Changes is being published in accordance with the requirements set out in OSC Staff Notice 21-703 (October 9, 2009) 32 OSCB 8007.
Post Only
Description of Proposed Changes and Reasons for Changes
The Post Only order feature is being introduced to allow an order to be posted on Toronto Stock Exchange without trading as an active order. Post Only is an optional feature that will kill an order immediately on entry if any part of the order is immediately executable during continuous trading.
Impact of the Changes
This feature encourages all potential liquidity providers to compete aggressively to tighten bid/ask spreads to the narrowest possible margin without removing liquidity. A trader without a need for immediacy will be able to use this optional feature to post limit orders to ultimately trade those orders while mitigating his/her transaction costs. The feature will be available to board lot executions during the regular continuous trading session of Toronto Stock Exchange.
Consultation
TSX is introducing this feature in response to customer demand.
Consideration of Alternatives
TSX considered adjusting order prices to allow for posting of an otherwise immediately executable post-only order. Adjusting order prices is a more complicated methodology. TSX determined that the simpler method would be the most effective method. The majority of our customer feedback rejected the complicated price-adjusting option because it reduces their ability to directly control their own order and makes it difficult for them to predict their order’s tradable outcome. Feedback suggested that any manner of price adjusting the post-only order would be less effective at producing the intended benefits for most customers.
Existence of Proposed Change in the Market
Post Only features have become a standard offering across most major North American market centres. Orders with post-only features are available on most of the major U.S. exchanges and ECNs and are available on a few Canadian ATSs. See Appendix A for further details.
Self-trade Prevention
Description of Proposed Changes and Reasons for Changes
The Self-trade Prevention order feature is being introduced to prevent unintentional wash trades by preventing a customer from trading against its own opposite side order where both orders have originated from the same Participating Organization. Self-trade prevention is an optional feature that will kill any portion of an incoming order that would otherwise execute against a resting order that was provided by the same customer within the same dealer. The prevention feature will be based on the usage of optional unique customer keys to be provided and managed by the Participating Organization.
Impact of the Changes
This feature will prevent traders from unintended “wash trading”, thereby assisting dealer compliance with UMIR 2.2. Preventing self trading will encourage traders to aggressively remove liquidity from other orders in the book while ensuring there is no misleading appearance of additional trading in a security due to unintentionally trading against self orders. This automatic compliance mechanism will assist traders in managing their orders and their customers’ orders when trading across multiple accounts from the same customer and across multiple traders executing various trading strategies.
Consultation
TSX is introducing this feature in response to customer demand.
Consideration of Alternatives
Other methods to prevent wash trading are possible (such as removing some or all of the resting order to prevent the wash).
TSX will consider these variations if customer feedback warrants an assessment after the successful launch of this initial release.
Existence of Proposed Change in the Market
Self-trade prevention has become a standard offering on most major North American exchanges and ECNs. Orders with self-trade prevention features are available on all primary U.S. exchanges and ECNs as well as at least one Canadian ATSs. See Appendix B for further details.
Appendix A
Post Only features on other marketplaces
The table below is based on TSX research of other marketplaces offering Post Only features
| Market | Description of functionality |
|---|---|
| BATS | P: post only (or rejected), also "partial post only @ limit order" removes up to a given a percentage of the quote Q: BATS Only Post Only At Limit (remove shares that improve upon limit price and up to MaxRemovePct of remaining OrdQty at limit price) |
| Direct Edge | Add Liquidity Only (i.e. Post Only) Orders… that would remove liquidity upon entry will be rejected. |
| NYSE Arca | ALO: Adding Liquidity Only order: The ALO order is a limit order that is posted to the NYSE Arca book in order to add liquidity. The Order assists Users in controlling their costs. Once accepted and placed in the NYSE Arca book, ALO orders will not route to away market centers. The ALO order shall be Day Only, and may not be designated as Good Till Cancel (GTC). ALO orders will be rejected when interacting with Passive Liquidity (PL) Orders. Aggressively priced ALO PNP Blind orders, that are moving (or changing price) due to an NBBO update, may result in receiving “liquidity removing.” The ALO Order is a limit order that is posted to the NYSE Arca book in order to add liquidity. The ALO Order is designed to encourage displayed liquidity, and allow users to control costs. By providing rather than removing liquidity, users can limit or reduce take fees. The ALO order will be Day only, and may not be designated as IOC (Immediate or Cancel), Good Till Cancel (GTC) or Good Till Date (GTD). ALO Orders will be rejected where, at the time of entry: - The ALO is marketable - The ALO will lock or cross the market - The ALO order would interact with undisplayed orders on NYSE Arca |
| Chi-X | POC order (post or cancel): cancelled if immediately executable |
| Omega | If immediately executable… it is instead rejected. Post on bid or offer. |
Appendix B
Self-trade Prevention features on other marketplaces
The table below is based on TSX research of other marketplaces offering Self-trade Prevention features
| Market | Description of functionality |
|---|---|
| BATS | MMTP: Member Match Trade Prevention: MMTP Cancel Newest, MMTP Cancel Oldest, MMTP Decrement and Cancel and MMTP Cancel Both. Orders with an MMTP identifier will not execute against the opposite side’s resting interest that is marked with any MMTP modifier originating from the same unique identifier. LastPx (31): price the match would have occurred at if not prevented by MMTP |
| NASDAQ | Self Trade Protection (rulebook: MBID: cancel offsetting amounts for both orders and book any remaining 4757 (4)) |
| NYSE Arca | "self trade prevention" markers: cancel newest, cancel both, decrement and cancel. NTD: the unique key is Exchange Traded Permit ID - aka UserID |
| Omega | Orders entered with the same No-Match ID shall not be allowed to execute against on and other. defined by omega |