TFF,
Actually, there is something said about the minimum fill. I can't claim that I fully understand this, but it sounds like there is at least an incentive for the MMs to quote at least 1000 shares if they are serious about getting executed. Someone with more expertise might have more insight on this.
From the proposal:
Reserve Size
The proposed reserve size functionality in the NNMS will yield priority to all other displayed quotes at the same price level, so that the system will execute against displayed size in time priority and then against the reserve size in time priority. To encourage the display of appropriate order size, NNMS will require a market maker using NNMS's reserve-size functionality to display a minimum of 1000 shares in its Proprietary Quote. Moreover, displayed Proprietary Quotes at the inside of the market that are to be refreshed at the same price level must be refreshed at 1000 or more shares for a market maker to be permitted to continue using reserve size. Market makers wishing to refresh and display at the same inside price at a size less than 1000 shares will be able to do so but will not be permitted to use NNMS's reserve size feature.
For example, in a situation where there are three market makers, ranked in time priority A, B, C, each at the best bid and each displaying 1000 shares and all with 5,000 shares in reserve, the system will handle the order as follows: If a 9,000 share market order is entered, the proposed system would automatically first take out the displayed 3000 shares. It then would take out the entire 5000 share reserve size of market maker A ("MMA") and 1000 shares of market maker B's ("MMB") 5000 share reserve size in time priority, filling the order and leaving MMB with 4000 shares in reserve size and market maker C ("MMC") with 5000 shares in reserve size. 15 MMA's quote would be completely decremented and drop from the inside market. Since MMB's total displayed and reserve quote would not be completely decremented (4000 reserve share size remaining) it would retain its time priority and, assuming it remains the best bid, remain at the top of the quote montage and have its displayed size refreshed from its remaining reserve size. For MMB to continue quoting shares in reserve size, MMB would have to have selected a 1000 share or greater refresh size. MMC, based on its 5000 share reserve size remainder, would retain the number two slot in the montage and would have the option of having its displayed quote automatically refreshed from reserve to a size level of its choosing. MMC would be subject to a 1000 share or greater display refresh minimum to be allowed to continue to quote reserve size. MMA's fully exhausted quote will have the option of being automatically refreshed away from the inside market using Nasdaq's automatic quote update function. If a specific, predetermined automatic quote refresh amount is not selected, the NNMS system will refresh a market maker's displayed quote from reserve size to a 1000 share display level.
As always, failure to update a fully exhausted quote will result in the system placing the market maker's quote in a "closed" state that, if not updated within 5 minutes, will be cause for suspension of the market maker's quote for 20 business days.
No Decrementation
In addition, Nasdaq is also proposing to eliminate the NO DEC feature for NNM securities, which currently allows continuous executions against a market maker's quote at the same price without decrementing the quoted size. Nasdaq believes that the NO DEC feature is increasingly less important now that market makers can manage their quote by displaying their actual size, and will become even less important in a market where market makers are given the ability to refresh their quote at a size they determine. Nasdaq also believes that NO DEC inhibits quote competition among market participants and discourages the full display of trading interest. Moreover, given the larger order sizes and faster executions that can be expected from the new trading system, Nasdaq submits that a continuation of NO DEC in NNMS could inadvertently expose market participants to inappropriate levels of order liability. Finally, NO DEC provides no benefits in conjunction with Nasdaq's proposed Agency Quote concept in that such agency quotes will represent the full and complete trading interest of the customer and are inconsistent with the unlimited and constant exposure to orders indicated by the use of NO DEC.
Dan |
