RPT--ICE CEO calls for market-wide purge of order types

Tue Jul 8, 2014 12:55pm EDT

(Repeats to fix typo in 9th paragraph)

By Sarah N. Lynch

WASHINGTON, July 8 (Reuters) - In a perfect world, stock exchanges would collectively agree to ban order types that critics have alleged create complexity and may give certain traders unfair advantages, Intercontinental Exchange Group chief executive Jeffrey Sprecher told lawmakers on Tuesday.

"I am uncomfortable with having all of these order types. I don't know why we have them. And I have started to unilaterally eliminate them," said Sprecher, whose company owns and operates the New York Stock Exchange.

"I hope other exchange leaders will follow my lead. I'd like to get us all working together to eliminate these types. I would be happy if we can do it as a private-sector initiative. I would be happy if the (Securities and Exchange Commission) orders us to get rid of them. I would be happy if Congress took action," he added.

Sprecher's comments, made at a U.S. Senate Banking Committee hearing, come just a few weeks after another NYSE official announced that the exchange was imposing a six-month moratorium on permitting any "new or novel" order types.

Earlier this year, the exchange operator also announced it was planning to eliminate at least 15 different order types in an effort to simplify the marketplace.

An order type, such as a limit or market order, allows investors to stipulate certain conditions, such as price. The major exchanges have dozens of order types, though many offer slight variations.

Exchanges typically must get a sign-off from regulators at the SEC before a new order type can be introduced.

But in recent years, critics have questioned whether more sophisticated investors, including high-speed traders, have been able to better grasp how order types work and use them to gain an edge over less savvy investors.

The SEC has been investigating order types, among other areas of equity market structure. The SEC is also looking at whether to include exchanges' disclosures about how order types work are aligned with the way they operate in the marketplace.

Earlier this year, SEC Chair Mary Jo White announced that she would like exchanges to undertake a broad review of the order types offered to customers.

Sprecher told lawmakers that while he would ideally love to get rid of order types, the competitive market reality dictates that he cannot do away with them entirely.

For instance, BATS Global Markets - one of NYSE's top competitors - also offers numerous order types, and so far has not made any calls for a ban.

"I am trying to balance cleaning up my own house," Sprecher told lawmakers. "I live in a glass house. I am trying to clean it up before I criticize others. At the same time, I can't make the New York Stock Exchange go to zero." (Reporting by Sarah N. Lynch; additional reporting by Herbert Lash in New York)