(Adds comments from BATS CEO, Senator Brown, other background)
By Sarah N. Lynch
WASHINGTON, July 8 In a perfect world, stock
exchanges would collectively agree to ban order types that
critics allege 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,"
Sprecher's concerns about order types touched on one of many
equity market structure issues discussed at a U.S. Senate
Banking Committee hearing on Tuesday convened to explore the
role of high-speed trading, and whether new rules are needed to
improve how the markets function.
Order types allow investors to stipulate certain conditions
for how their stock orders are executed, and are an area
policymakers have been scrutinizing. The major exchanges have
dozens of order types, though many offer slight variations.
Although exchanges must get regulatory approval from the
Securities and Exchange Commission before offering new order
types, some 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 how order types are being
used, and whether the disclosures exchanges provide about how
order types work are truly aligned with the way they operate in
Recently, SEC Chair Mary Jo White asked all of the
exchanges, including NYSE, Nasdaq OMX and BATS Global
Markets, to conduct a broad review of their order types.
Sprecher's comments came in response to a question from Ohio
Democratic Senator Sherrod Brown, who said he was concerned that
NYSE "continues to allow high-frequency traders to use some
predatory order types."
Even before Wednesday's hearing NYSE had already taken steps
to address concerns about order types, including eliminating 15
types and imposing a six-month moratorium on permitting any "new
or novel" order types.
But Sprecher told Brown it would not be practical to get rid
of all types, in part because it would make the exchange less
competitive. BATS Global Markets, for instance, offers numerous
"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."
BATS CEO Joseph Ratterman, who also testified Wednesday,
told Reuters on the sidelines of the hearing that his company
routinely evaluates its order types and prunes certain ones, but
was skeptical the measures suggested by Sprecher could work.
That's because order types are driven by both SEC rules and
by demand from investors to have some level of control over how
their electronic orders are executed, he said.
As long as those two factors are in play, he said, "those
orders are going to stay in existence on our exchange."
(Reporting by Sarah N. Lynch; additional reporting by Herbert
Lash in New York; Editing by Meredith Mazzilli)