"Island will no longer accept "subscriber-only" orders in certain stocks pursuant to SEC Regulation ATS"
<this message sent out thru ISLD ECN email list>
AUDIENCE
--------
Anyone who enters "subscriber-only" orders into the Island book.
SUMMARY
-------
In order to comply with the forthcoming SEC Regulation ATS display
requirements, starting on Tuesday, August 24th, 1999, Island will no longer
accept "subscriber-only" orders onto the book in the stocks "JBOH" and
"IMNX". Orders entered as "subscriber-only" orders in these stocks will be
returned to the order entry firm if an immediate match is not available.
This change does not effect any other stocks besides JBOH and IMNX, nor does
it affect the operation of normal, non-"subscriber-only" orders in any stock
in any way. It *only* affects subscriber-only orders in the two stocks JBOH
and IMNX.
WHAT DO I HAVE TO DO?
---------------------
You do not have to do anything, this change will automatically take effect
tonight.
WHAT DOES THIS MEAN?
--------------------
If you try to enter "subscriber-only" orders on Island in the effected
stocks, you may see some of your orders returned to back to you with a "U R
OUT" message rather than being added to the book. You can re-enter any
returned orders as either "normal visibility" or "invisible".
"Subscriber-only" orders are a special type of Island order that is visible
on the Island book but not reflected in the ISLD quote on NASDAQ. These
orders are used occasionally by traders who want to enter orders that would
otherwise lock or cross the NASDAQ market. Since NASDAQ forbids locking or
crossing their market, subscriber-only orders were a convenient way of
attempting to buy or sell a stock outside the NASDAQ quote without violating
NASDAQ rules.
This change will not effect the vast majority of Island users since most
users do not commonly employ "subscriber-only" orders.
WHY DIDN'T YOU DO THIS BEFORE?
------------------------------
Although these rules were slated to go into effect long ago, their
implementation has been postponed several times by the SEC. The SEC has set
this Tuesday as the final implementation date.
NOTES
-----
The original intention of the new SEC display rules was to prevent ECN's
from showing a substantially different market to their own subscribers than
they show to the outside world. The thought was that some ECN's were
fostering a "private" pricing system whereby system members could trade
amongst themselves at substantially better prices than those shown to the
public markets (and thus retail investors). By requiring ECN's that reached
certain critical volume levels to reflect all their orders in their quote,
the SEC hoped that these previously "private" prices would become part of
the public market and lead to smaller spreads and fairer access for
everybody.
The formula that SEC came up with was that if an ECN executes more than 5%
of the total volume in a given stock during four out of the last six months,
then that ECN is large enough that it should be required to display all its
visible orders to the public marketplace.
The SEC was careful only to include what they considered "visible" orders in
the requirement. Specifically, they said that the ECN had to represent any
order that was visible to more than one system subscriber. This means that
completely non-visible orders are not effected by the rule, only orders that
can be seen by more than one subscriber. Therefore, Island "non-visible"
orders are not effected since they can only be seen by one firm (the firm
that entered the order).
The SEC decided that it was prudent to phase in these new rules a few stocks
at a time. For the first phase, they selected just 50 stocks. Therefore, on
Island the new rules only affect those stocks that are both on the SEC's
phase 1 list *and* in which Island accounted for more that 5% of the total
volume in four out of the past six months. JBOH and IMNX were the lucky
first winners. As the phase in continues, more and more stocks will likely
become subject to this rule on Island.
Island is in favor of any change that leads to a more efficient market
place, and clearly having more orders reflected in the marketplace should
lead to better pricing for everyone. In fact, Island has *always* displayed
all of its visible orders (even subscriber-only orders) to the entire world
over the Internet via our BookViewer system.
We've decided that to best serve our customers, it was better to return any
"subscriber-only" orders that would be subject to the rule back to the party
that entered them rather than displaying the orders against the user's
instructions. The rational is that the party entering the order clearly did
not want the order reflected in the marketplace, so we'd rather send it back
than go against their explicit request. The entering party then has the
opportunity to make a choice as how best to handle the order, only
re-entering it as a displayable order if they so choose.
LINKS
-----
You can read the actual SEC Regulation ATS at
sec.gov
(search for the words "Integration of Orders" to jump to the display part of
the rule)
You can read about the implementation dates and stock sets at
nasdaqtrader.com
You can access the Island BookViewer at
island.com
QUESTIONS
---------
If you have any questions or comments you can email us at info@isld.com.
Thanks again for using Island. |
