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The Evolution of M-ELO: How It Delivers Performance and Where It's Headed

The Evolution of M-ELO: How It Delivers Performance and Where It's Headed

The blink of an eye is a lifetime in financial markets. And if investors are willing to wait even 500 milliseconds, it's because they seek an optimal trade execution. Yet, the risk always exists that they might be swept up by an IOC order, the market shifts or they otherwise experience lower quality execution.

When using Midpoint Extended Life Order (M-ELO), long-term traders can avoid such execution quality traps. With M-ELO, they can find and execute against other investors with similar mindsets and time horizons.

Since its introduction in the United States 2 ½ years ago, M-ELO has achieved many of the goals it was built for — and then some. Let's take a look at how it's delivered performance for customers and what continuous improvements have been made.

What is M-ELO?

M-ELO is a non-display order type that executes at the midpoint of the national best bid or offer (NBBO) spread. There are two big controls to ensuring traders using M-ELO are paired with like-minded investors:

  • M-ELO orders can only execute against other M-ELO orders.
  • M-ELO orders can only execute once 500 milliseconds have passed (the timer starts when the order is placed).

In this way, M-ELO is a purpose-built solution that uses a patent-pending matching process to connect investors on a broker-neutral platform. All different types of trading customers can take advantage of M-ELO — every order has to wait the required 500 milliseconds.

M-ELO is ideal for those who don't have immediate liquidity needs, as it helps such traders avoid aggressively priced orders and sweep orders with high urgency that could degrade execution quality.

What does M-ELO look like in real time?

  1. A M-ELO buy order is placed at the NBBO midpoint of $9.005
  2. The buy order waits 500 milliseconds before becoming eligible to execute
  3. A sell IOC order sweeps the book, but can't execute against the M-ELO buy order
  4. The market shifts and the buy order is automatically updated to the new NBBO midpoint of $8.995
  5. A M-ELO sell order is entered and waits the required 500 milliseconds
  6. The two M-ELO orders are matched up and execute at the midpoint

How has M-ELO performed since its introduction?

M-ELO has been a major success with customers, averaging 15 to 20 million in volume daily since introduction in the USA. Many days have even topped 25 million.

It's clear the activity and demand is there, but why? In short, because M-ELO has delivered on its intention to harmonize performance, democratize speed and provide high execution quality. Let's explore three ways in which M-ELO has performed:

1. Quote stability

Quote stability is a measure of the percentage of trades where the NBBO midpoint did not change post trade. Higher quote stability indicates investors using the order type experience less negative price impacts after execution due to market movement.

As it happens, M-ELO has the highest quote stability rate of comparable order types offered by other exchanges. Quote stability is 90% for M-ELO trades within 100 milliseconds after the trade. Even after 1 second, quote stability for all firms using M-ELO is over 70%. At each interval out, M-ELO leads in quote stability.

Not only is quote stability high after the trade, but also before it. Quote stability is near 90% at 100 milliseconds before execution.

2. Minimal market response

Not leaving a big footprint on the market is a priority for multiple reasons. When using M-ELO, traders can be confident that they won't have an outsized impact.

This can be seen in the absolute market response, or how much the NBBO midpoint moves after a trade is executed. Again, M-ELO offers superior performance compared to other order types, with absolute market response rates well below 0.10 basis points, peaking slightly after 2.5 millisecond post-trade and plateauing after that.

3. Markouts

Negative markouts equal bad execution quality, and M-ELO has helped investors limit such outcomes by achieving near parity for traders. A recent data analysis shows the wide majority of markouts for M-ELO orders are +/- half a basis point across a range of time intervals.

How has M-ELO been improved?

While M-ELO has demonstrated performance in several areas, Nasdaq is committed to continually looking for ways to further improve M-ELO, and thus provide better execution quality and convenience.


The introduction of reloads has been central to that continuous improvement. Traders like to return to the same pockets of liquidity, and the reload option gives them a high-quality means of doing so. Order reloads are those that occur when a firm sends an order for the same symbol and on the same side (i.e., buy or sell) within five seconds of an execution.

Reloads have progressively grown to become more and more of overall M-ELO order. Reload metrics including quote stability and hit rate might help explain why reload performance has generated increased volume:

  • Reloads entered within 2 seconds have better quote stability than all other M-ELO orders. In general, reloads placed at all measured time intervals after a previous trade benefit from quote stability that is greater than or as good as other M-ELO orders.
  • Hit rate is highest for reloads placed the soonest after a previous trade, with those orders reloaded within 5 seconds having the higher hit rate than other M-ELO orders.

Smart Order Router

Routing strategy is important to costs and execution quality when in need of an alternative trading venue. We are leveraging the Nasdaq Smart Order Router to route M-ELO orders.

What's next for M-ELO?

There are always designs to further improve and refine M-ELO for optimal performance and execution quality, as evidenced.

Some of the plans for the future include:

Timer Reduction:

When initially introduced in the USA, M-ELO featured a holding period of 500 milliseconds. This was magnitudes longer than the shortest delay of comparable offerings — as far as the fast pace of financial markets is concerned. Yet, M-ELO still performed better.

The intention was to always revisit the timer, and encouraged by performance under the 500 millisecond delay, Nasdaq opted to reduce it to 10 milliseconds

The results? After the timer reduction, M-ELO average daily volume increased more than 70%. Now, customers have further flexibility to increase fill rates and reload after execution.

Get on board with M-ELO

As M-ELO continues to prove itself and its utility, Nasdaq is focused on delivering superior performance and support to customers.

Interested in learning more about M-ELO and how you might benefit from using the order type? Reach out today for more information

All performance statistics referenced in the article are based on US market data.

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