Subject: File No. SR-EDGX-2014-18
From: Suzanne Hamlet Shatto

September 18, 2014

​in my opinion, the SEC should require a table of contents for submissions over 100 pages so that people can read and cite particular sections.

34-72676 Jul. 25, 2014 Notice of Filing of Proposed Rule Change Relating to Include Additional Specificity within Rule 1.5 and Chapter XI Regarding Current System Functionality Including the Operation of Order Types and Order Instructions

​I am so glad mr. swanson addressed my comments.  i have no grievance against EDGX except for the fact that they enable an unfair marketplace.  marketplaces are not competitive if they disadvantage one of the parties that trade and there are few other places to trade that also do not disadvantage investors in similar ways.  brokers decide where to place orders, not retail investors.  rather, this indicates collusion between the participants against the investors.(1)

"The mission of the U.S. Securities and Exchange Commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation."

none of this would have been a problem if the exchanges had not written their own rules of operation and adopted non-transparent order types and order processing.  this violated the principle of transparency for both the public and the regulator.  See the principles of the Dodd Frank Act (2)

the financial industry are intermediaries, taking $ from investors, and trading in the marketplace.  there was never any mandate to keep financial entities in business nor allow them to have advantages over the retail/institutional investors.  the financial industry has profited mightily at the expense of the investors, which eroded the confidence of investors in government, and in the financial industry.  

some of the activities of financial intermediaries was a capital outflow from the market.  other business entities began recently to provide services to the intermediaries, allowing them advantages over others.  information became less available to the public and more available to other participants in the market.

EDGX is an exchange where participants trade and therefore part of the financial industry.  this is a regulated industry and EDGX knowingly chose to participate in this business.  as such, EDGX should be aware that their actions or non-actions may affect the marketplace and have a potential to harm people who are trying to engage in capital formation.

relying on a past ruling for a different exchange, with perhaps differences in order type or execution is not sufficient justification.  the SEC may be guided by past rulings but they may also decide that rule proposals are insufficient, illegal or harm the marketplace in practice. 

price and quantity order information are not inside information, available only to marketmakers.  while this seems to be the current practice, marketplace fairness should be restored.

as i see it, there are conflicts in order type and modifiers with the SEC mission and dodd-frank.  these order types and modifiers can be used in concert to disadvantage investors in the market because they deny regulators, investors and institutional investors information while coding orders so that other marketmakers and premium customers can read the order type to know whether orders will execute, to know whether orders will perform in certain ways.  the exchange provides a turkey shoot for the benefit of marketmakers, speculators and high frequency traders.

since these disadvantages are operating in the entire marketplace so that retail investors are disadvantaged and these disadvantages were not presented to the SEC to approve in this manner, the SEC really has little choice.  the SEC needs to investigate order types and instructions/modifiers, the way that these are used.  the only question is whether the exchanges need to be closed down to do this.  are these order types and instructions hard-coded or can the exchanges stop using several of these at once?  it was folly to build the software and use all of these things without the knowledge of regulators.  even if some things may have been approved, they would not have been approved if the regulators understood how they would be used or understood the frequency of the use of many of these order types and instructions.

as i see it, the proliferation of all of these order types and instructions and move toward "premium content" in every exchange disadvantages investors in favor of speculators and short-term traders, and this trend is bad and maybe dangerous because it destabilizes the economy.  it is affecting our economy because there is no good place to put investors' money.  short-term speculation is a fad and increases risk for everyone.  it is estimated that 70% of the trading is high frequency trading daily.  this doesn't need to be enabled or preserved.  these exchange operations conflict with the SEC mission statement.

"High-frequency trading is responsible for some 70% of market volume and provides a lot of liquidity, says Nikoleta Panteva, a senior analyst with IBIS World who wrote a February 2012 report on high-frequency trading.
"There's a sense that high-frequency trading affects market pricing too much, that the changes in the market aren't natural," Panteva says."(4)
short-term trading and speculation is a capital outflow from the financial markets and destabilizes the economy.  when entities do not own the products that they sell, and when the volume of the trading is 70% or more, this will affect prices and ramp up noise in the financial markets.  the exchanges have enabled speculation with their operation.
price is established as a result of an agreement between buyers who wish to own the item and sellers who own the item but want to sell.  when other entities who do not own the items but wish to make a profit drive prices down because of their volume, then the investors will suffer.

page 4-5:
"Unless otherwise stated,4 the Exchange does not propose to substantively modify the operation of any of the current defined order types or terms or the operation of the System; rather, it intends to provide additional specificity and transparency to Members, Users, and the investing public regarding the Exchange’s order types and system functionality, and to organize its rules in a more intuitive and less complex manner.5"

this indicates EDGX is merely explaining but intends to carry on in the manner they are conducting their business.

i think the SEC intends to review the rule "proposal", rather than just file this rule proposal as written.  that means that EDGX should not believe that there will be no modification to their process/order types.  EDGX adopted order types and modifers without permission of the regulator.

pages 8 and 9

"Unless otherwise stated, the Exchange does not propose to substantively modify the operation of any of the current defined order types or terms or the operation of the System. The Exchange believes the proposed amendments will provide greater transparency regarding how the System operates, the order types the Exchange offers, which instructions a User may attach to each order type, and 
how order types and instructions when used in combination, may affect an order’s execution priority under proposed renumbered Rule 11.9."

in my opinion, the bar is much higher than this.  EDGX needs to understand that some of their processes, order types, instructions and modifiers may be reviewed in this process.  the public has every right to comment on rules and the content of the proposal.  the SEC may also decide that some of the content might violate the mission statement of the SEC or dodd frank.

page 10
The terms and instructions defined within proposed Rule 11.6 are as follows:
Attributable and Non-Attributable (Rule 11.6(a)). 

"A Non-Attributable Order is currently defined as “[a]n order designated for display (price and size) on an anonymous basis by the System.”

in my opinion, this non-attributable order violates transparency for the regulator when they attempt to construct an audit trail.  there is no justification for this feature.  why do the exchange users want to hide their MPID from other participants?  

"Specifically, the Exchange proposes to state that unless the User elects otherwise, all orders will be automatically defaulted by the System to Non-Attributable. "

this is quite obnoxious.  the default should be "attributable".  and please note that i believe "non-attributable" should not be available for selection by customer profile or order instruction.

page 11:
Cancel Back (Rule 11.6(b)). 

in my opinion, if an order violates a law, rule or would be invalid in particular circumstances, the exchange should generate a message back to the user indicating that the order was not placed or executed and perhaps cite the reason for cancellation.  i don't think there needs to be an order type for this.

page 12:
Discretionary Range (Rule 11.6(d)). 
The Exchange currently defines a “Discretionary Order” in Rule 11.5(c)(13) as an “[o]rder to buy or sell a stated amount of a security at a specified, undisplayed price (the “discretionary price”), as well as at a specified, displayed price.”20
 The Exchange believes that a Member adding a non-displayed discretionary price to its order is characteristic of an instruction, rather than an order type. 

is there a justification for having a non-displayed price?  i see no justification unless the user is intending to deceive other users/participants as to quantity or price.  i don't care whether you call it an instruction or an order type.  such an instruction can be very destructive to market price if coupled with other order types or instructions.

this would violate the dodd frank principles of transparency, in opposition to the principle of investor protection by disclosure.  i think the user is attempting to deny retail investors or other participants information.  an order is not intended to be private and not disclosed to other participants.  this is a marketplace that gives the non-premium onlooker information about price and quantity.  there is an order book that maintains a queue for orders.

page 13-14
Display Options (Rule 11.6(e)). 
"Current Exchange Rule 11.5(c)(8) defines a Non-Displayed Order as:
[a] market or limit order that is not displayed on the Exchange."

i think all orders should be displayed for all users.

it appears that the exchange does not want to provide information on this "non-displayed" instruction in this rule filing, but chooses to refer to a document not attached or accessible.

"23 Other exchanges define Non-Displayed similarly, but as a “Non-Displayed Order.” See Nasdaq Rule 4751(e)(3), and BATS Exchange, Inc. (“BZX”) Rule 11.9(c)(11). In addition, an order may include a Displayed and Non-Displayed Instruction. See proposed Rule 11.6(m) infra."

there should not be a displayed instruction AND a non-displayed instruction in an order.  this deceives the viewer into thinking that they are seeing an order as it was placed in the market.  i think the exchange should explain why there should be any non-displayed instruction and why there should be both a displayed instruction and a non-displayed instruction.

non-displayed instruction violates transparency and a makes the marketplace unfair, (1) and (2).

please note that on page 15, that the instructions and orders are used in combination with each other.

page 16
Locking Quotation and Crossing Quotations (Rule 11.6(c) and (g)). 

this is not my area of expertise, so i cannot comment on it.

Minimum Execution Quantity (Rule 11.6(h)). 

Minimum Execution Quantity is an instruction a User may include with an order that includes a Non-Displayed instruction requiring the System to execute the order to the extent that a minimum quantity can be satisfied by execution against a single order or multiple aggregated orders simultaneously. 

i don't agree with the non-displayed instruction as presented.  there might be a rationale to have a minimum execution quantity, but there should be no non-displayed instruction with this instruction.  however, i have also seen orders which bypass the best bid or ask in order to execute with orders that have a lower position in the queue.  there has been some abuse with this type of instruction by non-retail/institutional order flow.  i have seen this used most often by users selling into the bid/demand.  they see a bid that is larger than the bid at the top of the queue and they can sell into that second bid, bypassing the top of the bid queue and this weakens demand and may cause the prices to decrease.

as i say, the rationale for the existence of this instruction becomes important.  if this instruction can be used with other instructions to make the marketplace less fair or disadvantageous for retail/institutional order flow, then this instruction might be best disallowed.

page 17
Minimum Price Variation (Rule 11.6(i)). 

for stock prices over $0.10, the order price should be in cents, not fractions of cents.  i have seen subpenny prices used to get to the top of the queue of the bid and ask.  i support the idea that participants should not be able to jump to the top of a queue by using subpenny prices. (1) fair marketplace

page 18
Pegged (Rule 11.6(j)). 
i don't have a problem with this kind of pricing, where the price might move because the market price moves.  the order, though, should receive a new timestamp and have to join the queue at the bottom of that price.

however example 5 includes non-displayed instructions and i disagree that there should be a non-displayed instruction.

page 21
Permitted Price (Rule 11.6(k)). 
i don't have a problem with this.
the order, though, should receive a new timestamp and have to join the queue at the bottom of that price.

page 22
Re-Pricing (Rule 11.6(l)). 
the order, though, should receive a new timestamp and have to join the queue at the bottom of that price.
always, if price or quantity changes, timestamp must change.

page 24
Re-Pricing Instructions to Comply with Rule 610(d) of Regulation NMS
you can see that the exchange is seeking to preserve all of the functionality by using them in conjunction with each other. some of these instructions are unfair, such as the hidden orders.

Price Adjust (Rule 11.6(l)(1)(A)). 
if an order changes, then the timestamp must be reset.  there should be no jumping in front of another order unless the price is improved.

page 25
Hide Not Slide (Rule 11.6(l)(1)(B)). 

there should not be hidden orders.  all orders should be able to execute at the time of entry.  there should be no decision to execute after the order is entered, so discretion to execute should not be allowed.

page 27
Example No. 2. Cancellation and Reinstatement of Discretionary Range
you can see that the post only order sounds like a fake order, not executable, but it might influence viewers, it might change the best offer and it might change the queue.

"If a Limit Order with a Post Only instruction to sell 100 shares at $10.10 is entered into the System, the buy order with the Hide Not Slide instruction will have its discretion to execute at $10.10 suspended."

this example appears to allow this order time to find out that the other order (Post Only) is not an executable order.  this is the problem with trying to fool the public with the Post Only but tipping all the marketmakers off that the Post Only order is a fake order.  why should they have this information.  this violates transparency and fair marketplace.

page 28
Example No. 4. Resting Sell Order Prevents Displayed Limit Order with a Post Only Instruction to Buy from Executing at Locking Price

and i think this is getting too silly with complexity.  the SEC will have to have a list of the modifiers to know which ones they want to challenge.  i would recommend that the exchange produce a list of orders that used in the last month, including the frequency of orders written and the frequency of orders traded.

all of this is caused by the fake orders and the hidden orders.  this is why people feel the market is unfair.  the exchanges came up with this all by themselves.

 "and (ii) the Limit Order with a Post Only instruction prohibits execution at its time of entry"

page 29
Routed and Returned Re-Pricing (Rule 11.6(l)(1)(B)(i)). 

they don't need all these orders to do all this stuff.
this order appears to lure an unsuspecting user into a trade at a more disadvantageous price.

when i am watching the exchanges, i often see these orders move in concert on both the bid side and the ask side.  now i know that this is to lure retail investors to execute a trade at a more disadvantageous price than they would get if they were to execute without all this noise.

why should stockbrokers waste their time getting securities licenses?  they have to learn all these instructions and order types so that they can figure out how to advantage themselves instead.

i don't like the repricing idea with this example.  it is only used to try to get the unaware user to pay a higher price or to get them to sell at a lower price.  and they do this thousands of times a day, maybe millions of times a day.

Short Sale Price Adjust (Rule 11.6(l)(2)(A)). 

each time the price adjusts and the orders are re-ranked, the time will be stamped on the order.  this benefits those marketmakers that can be on both the bid and ask. when they know the shortsellers are the only one that is on the bid and ask, then they can walk the price down on the bid and lower the price on the ask.

page 35
Short Sale Price Sliding (Rule 11.6(l)(2)(B)). 

this makes shortselling very easy.  all they gotta do is generate a bunch of orders of this type/instruction, have their computers break them up into smaller orders,  and the exchange computer will just take care of eating up the retail/institutional demand.  significant volume will decrease the price and the order type makes sure that the price decrease as the demand is reduced.

page 36
Re-Pricing of Orders with a Non-Displayed Instruction (Rule 11.6(l)(3))

and page 37
Operation of Orders with a Non-Displayed Instruction

i think non-displayed instructions should be deleted.

this rule proposal frequency references SEC approval of other exchanges' rule filings as a reason to continue to use unfair instructions or unfair order types.  this is why the SEC needs to address all of these rule filings in concert.  the SEC should not seek to mitigate the problems in the financial industry by delaying implementation.  these problems are TODAY taking investors' $.

page 38 and page 39
Reserve Quantity and Replenishment Amounts (Rule 11.6(m)). 

this hides some quantity and pricing information from non-premium users.  there should be no "hidden" information. the premium users seek to hide the quantity and pricing information by using a "random replenishment" instruction.  this is deception and against the transparency of dodd-frank, against the competitive and fair marketplace in the SEC mission statement.  (1), (2)

page 43-47
Routing/Posting Instructions (Rule 11.6(n)). 
As discussed in more detail below, the Exchange proposes to describe the routing and posting instructions available to Users under the Exchange’s rules under new proposed Rule 11.6(n). Specifically, proposed Rule 11.6(n) defines the following routing and posting 
instructions that a User may select, depending on the order type: (i) Aggressive; (ii) Super Aggressive; (iii) Book Only; (iv) Post Only; (v) Destination Specified; and (vi) Destination-on-Open.

the SEC needs to note all of these order types and instructions.  why do you think they are labeled "aggressive" or "super aggressive" or "post only" or "book only"?  they are predatory to the retail/instutitional users, and intended to deceive.  the financial participants are DRIVING PRICES.

i also wonder if these were all the order types and instructions available.  i note that at the beginning of the filing that EDGX stated that not all instructions are available for all order types.  i would think that the exchange should specify which instructions have properties when coupled with which order types.  also there should be some frequency of order types, order types with instruction type for orders entered and for orders traded.

pages 61 and 62
The Exchange’s BBO Joins NBO

i think the SEC should pay attention to this section and look at the examples.  professional traders using these instructions can stop investors from trading at a displayed price.  i am not sure what a contra-side order is.  it seems to keep the bid queue from buying.

the idea of "removing liquidity"/"adding liquidity" doesn't make sense either.  do shortsellers shorting the market "add liquidity"?  they are forcing the buyer to accept a debt instead of shares.  this deceives a buyer to accept an IOU instead of stock shares.

most of the remaining scenarios on the next several pages involve instructions that make the marketplace unfair, as i have already noted.

order types should not overlap and provide the same functionality of another order type.  same with instructions.

a manual should be accessible to the public on the internet via a link that is descriptive.   this link should be in an accessible location from the opening page.

page 99
refers to rebates paid to some participants.  i am against rebates because the retail/institutional pay for them (provide revenue to their brokers and exchanges which is then "rebated" to servicing brokers who deliver their IOUs instead of shares).  there should be no rebates at all.  the servicing brokers are not providing a service that retail/institutional users want to pay for.

page 100
"Therefore, the Exchange believes defaulting to the Price Adjust 
instruction is designed to promote just and equitable principles of trade because it is designed to assist market participants in better controlling their execution costs and is the re-pricing instruction most closely aligned with the general intent re-pricing instructions generally."

why would the exchange want to assist market participants control their execution costs?  if a market participant comes up with a strategy but it costs more than they want to pay, why is the exchange assisting with this.  does the retail/institutional users get these benefits?  if a strategy costs too much to implement, it should be discarded by the trader, rather than the exchange accommodating traders.  to make such a concession, is to favor one user over another.

the service of giving retail/institutional users worse prices and disadvantaged service is not a service that we want to buy.  i would say that if the exchanges cannot provide a fair marketplace, then their reason to exist is questionable.

page 100
"The Exchange also believes that ranking orders with a Hide Not Slide instruction or orders with a Non-Displayed instruction at the midpoint of the NBBO is designed to promote just and equitable principles of trade and remove impediments to, and perfect the mechanism of, 
and free and open market system."

this is quite tortured.  there are no impediments removed.  they are not perfecting anything.  this impedes a free and open market system.  maybe they just drop this paragraph in anywhere.

the rest of that paragraph is not tested by me.  perhaps a regulator could observe what is going on.  obviously, the exchange has a very liberal idea of what a free and open market system is.

i note that if the SEC objects to any one thing in this filing, the whole filing will have to be redrafted because the exchange assumes they can file this "rule proposal" but it is not subject to change.  many ideas are carried forward to other ideas because they depend on the preceding idea.  i don't agree with the last several pages, but they are a consequence of the preceding pages.

there should be an index page with:
order types listed
instructions listed
examples listed.


suzanne hamlet shatto

(1) Securities and Exchange Commission. (2013, June 10). | The Investor's Advocate: How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation. Retrieved from
​(2) ‘‘Dodd-Frank Wall Street Reform and Consumer Protection Act’’. (2010, January 5). Retrieved from

​(3) Goodman, B. (2014). Tapping the Brakes on High-Speed Trading - Barron's. Retrieved from, "Tapping the Brakes on High-Speed Trading"