Display Price Sliding Mechanics Two Penny Wide BATS Market Multiple Display Price Sliding Hidden Orders and Midpoint Pegs 2 Why Price Slide Rule 610d of Regulation NMS Exchanges must establish maintain and enforce written rules that require members to reasonably avoid ID: 1028852
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2. Agenda Why Price Slide? Display Price Sliding Mechanics Two Penny Wide BATS Market Multiple Display Price Sliding Hidden Orders and Midpoint Pegs2
3. Why Price Slide?Rule 610(d) of Regulation NMSExchanges must establish, maintain and enforce written rules that require members to reasonably avoid displaying quotations that lock or cross any protected quotation in an NMS stock.NBO: $20.01NBB: $20.00BATS Bid: $20.01
4. $20.02Display Price Sliding allows BATS to comply with Rule 610(d) by sliding the Display Price on a BATS order that would lock or cross a Protected Quotation.Display Price Sliding MechanicsBATS BidBATS OfferNBONBBBATS BidDisplay Price on this order is slid to $20.00BATS still displays a quote of $20.00 x $20.02 even though the BATS book is now effectively $20.01 x $20.02.$20.00$20.01
5. $20.02An aggressive sell order with a limit price of $20.00 targeting the NBB will be executed at $20.01 on BATS against the slid buy order. This seller receives $0.01 in price improvement.Display Price Sliding MechanicsBATS BidBATS OfferNBONBBBATS Bid$20.00$20.01BATS Sell @ $20.00
6. Display Price Sliding MechanicsTwo events can cause an “un-slide”$20.02BATS OfferNBONBBBATS Bid$20.00$20.01BATS BidChange in a Protected QuotationBATS now displays a quote of $20.01 x $20.02.
7. Display Price Sliding MechanicsTwo events can cause an “un-slide”$20.02BATS OfferNBONBBBATS Bid$20.00$20.01BATS BidBATS ISO (which changes BATS’ view of the Protected Quote)BATS Bid (ISO)BATS now displays a quote of $20.01 x $20.02.
8. $20.02Prior to September 16, 2011, a two-Penny-Wide BATS book was unable to tighten due to a slid order.Two-Penny Wide BATS MarketBATS BidBATS OfferNBONBBBATS BidDisplay Price on this order is slid to $20.00BATS still displays a quote of $20.00 x $20.02 even though our book is now effectively $20.01 x $20.02.$20.00$20.01BATS Post Only OfferCancelled: Would Remove!
9. BATS BidBATS Post Only Offer$20.02The EnhancementTwo-Penny Wide BATS MarketBATS BidBATS OfferNBONBB$20.00$20.01$20.005BATS book has now tightened to $20.00 x $20.01 equaling the NBBO. The slid bid is still displayed at $20.00, but the order is now only executable at $20.005.
10. BATS BidBATS Post Only Offer$20.02The Enhancement (cont.)Two-Penny Wide BATS MarketBATS BidNBONBB$20.00$20.01$20.005If the Post Only Offer is removed (due to execution or cancellation) from the book, the executable price on the slid bid is adjusted back to $20.01.BATS Offer
11. Benefits of the Enhancement BATS’ market is able to tighten so that it equals the width of the prevailing NBBO. Liquidity providers may always tighten the BATS market to the NBBO with a Post Only order. Reduces number of “WouldRemove” cancellations resulting in less system load and fewer repeated attempts from liquidity providers trying to tighten the BATS book.
12. Multiple Display Price Sliding (MDPS)Anticipated to be most commonly used with securities in a Reg SHO Circuit Breaker (Short Sell Circuit Breaker). Sending DisplayIndicator(9479)=M allows a displayed order to ratchet up or down as the Protected Quote changes.12$20.02BATS BidBATS OfferNBONBB$20.00$20.01BATS Short Sell ($19.75 limit)Non-Post-OnlyShort Sell Order is slid (display and working price) to NBB + 1 trading incrementBATS Short Sell ($19.75 limit)Non-Post-OnlyShort Sell Order ratchets down to NBB + 1 trading increment when NBB changesMultiple Display Price Sliding is scheduled to be available on BATS BZX and BYX on August 24, 2012.
13. Multiple Display Price Sliding (MDPS)MDPS can also be used with standard limit orders in order to allow them to work at the most aggressive price possible based on the prevailing NBBO.13$20.02NBONBB$20.00$20.01BATS Buy Order ($20.05 limit)BATS OfferBATS Buy Order ($20.05 limit) Display Price on this order is slid to $20.00When the NBO lifts, MDPS allows the buy order to also lift. This results in an execution against the $20.02 offer on BATS.
14. Hidden OrdersHidden orders can be used to post an order to the BATS book that is not displayed to the rest of the market. Hidden orders have a lower priority than displayed orders at the same price.14$20.02BATS BidBATS OfferNBONBB$20.00$20.01BATS Hidden BidA sell order at $20.00 would execute against all displayed bids at $20.00 before executing against the Hidden bid at $20.00.
15. BATS Hidden Post Only Bid - ExecutableHidden OrdersHidden orders that are also Post Only will be accepted even if the order locks or crosses the displayed BATS book, but they are only executable at the midpoint when displayed liquidity locks the hidden order.15$20.01BATS BidBATS OfferNBONBB$20.00$20.005BATS Hidden Post Only Bid
16. Midpoint Peg OrdersMidpoint Peg orders are hidden orders that are pegged to the midpoint of the NBBO. Midpoint Peg orders always work at the true midpoint, even if the true midpoint is a ½ penny price.16$20.01BATS BidBATS OfferNBONBB$20.00$20.005BATS Midpoint Peg BuyA Midpoint Buy and a Midpoint Sell can co-exist as long as the inbound order is Post Only.BATS Midpoint Peg Sell Post Only
17. Disclaimer: BATS makes no representations or warranties as to the accuracy or completeness of the information provided in this presentation. BATS will not have any liability to any party resulting from the use of the information contained in this presentation.