March 2, 2016
We are happy to see Direct Edge file a proposed rule change on this issue but we have a few questions.
As we understansd it, the rule change is detailing how Direct Edge was posting displayed orders to other trading centers that were supposed to be non-displayed. Their filing states:
"Non-Displayed is an instruction the User may attach to an order stating that the order is not to be displayed by the System on the EDGX Book. A Reserve Quantity is the portion of an order that includes a Non-Displayed instruction in which a portion of that order is also displayed on the EDGX Book. Both the portion of the order with a Displayed instruction and the Reserve Quantity are available for execution against incoming orders. Under the Post to Away routing option, the remainder of an order that was previously routed away and returned to the Exchange may be re-routed to and post on the order book of a destination on the System routing table as specified by the User.
Currently, orders with a Non-Displayed instruction or Reserve Quantity that are routed to an away Trading Center pursuant to the Post to Away routing option are routed as fully displayed orders. The Exchange proposes to include a Non-Displayed instruction or to include a Reserve Quantity on orders routed to an away Trading Center. The Exchange believes doing so is consistent with the original intent of the order, to be Non-Displayed or to include a Reserve Quantity."
The problem seems to occur when a client selects the "Post to Away" strategy which is a routing strategy that posts liquidity to another exchange. Rather than posting an order as a non-displayed order, the trading center that received the order from Direct Edge posted the entire order as a displayed order. In the filing, Direct Edge states that this rule proposal will become effective immediately. We agree that Direct Edge should make this change immediately but we are more concerned about the potential damage that the "Post to Away" strategy might have caused their clients. Will the SEC be able to track down the amount of times Direct Edge displayed the entire size of an order? Is the SEC able to quantify the damage that this exposure could have cost the investor who posted the order which should have been non-displayed?
We trust that the SEC will follow up on this latest Direct Edge proposal and find out if any investors were harmed.
Sincerely,
Joe Saluzzi
Sal Arnuk
Themis Trading, LLC