TradeTalks: Market Structure Solutions

Nasdaq filed a proposal with the Securities and Exchange Commission for a Midpoint Extended Life Order (M-ELO) that is different from all of the order types available on other stock exchanges. M-ELO is designed to enhance market opportunity and execution quality in order to attract institutional and long-term investors. The proposal is to have a single order type, executable at the midpoint, that becomes eligible to trade once it has been on the Nasdaq exchange for half of a second. This order type can only trade against a contra-side M-ELO that has also been on Nasdaq for a full half of a second.

“It is a way for human being to meet human being in the dark, and, frankly, it is a clever way to do what people in this market call segmentation,” David Weisberger, Head of Equities at ViableMkts said. “Segmentation can benefit investors when it is tailored to their needs.”

Benefits of M-ELO:

  • Built for long-term investors to more actively participate on Nasdaq
  • Increases competition by incentivizing and promoting non-speed-related behaviors
  • Addresses industry desire for greater price stability
  • Drives positive trading behaviors

“The reality is, if I am a human trader sitting at a keyboard, this is a really interesting way for me to try to find liquidity that matches the way I trade.”

Markets are complex, and a one-size-fits-all solution would not work as there are hundreds of different types or traders and investors interacting. “It can’t be lost that the competitive nature of U.S. markets has evolved better from objective measures such as percent of market cap traded, overall spreads, etc. to fit all of those people. And the fact that Nasdaq, and even other competitors, can come out with an innovation, is a good thing for the markets.”

To learn more from David on market structure, check out this video as he joins Jill Malandrino at the Nasdaq MarketSite.

Follow Jill Malandrino on Facebook and Twitter @JillMalandrino

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