Wednesday, May 9, 2012

Equity Technical Update #2012 - 15
Testing for Technology Enhancements Available Saturday, May 12, 2012

What will be offered?

On Saturday, May 12, 2012, NASDAQ OMX will support testing of upcoming equities market functionality enhancements:

• Automatic resubmission of OUCH orders that are price slid due to Reg NMS
• Benchmark Orders
• Introduction of OUCH v4.2 & v3.3
• Early acceptance of IPO Orders

Additional communication will be forthcoming prior to the production implementation of these changes.

What is Reg NMS price sliding?

Price sliding occurs on all NASDAQ OMX markets when an incoming, bookable order would lock or cross a protected quote at another market center. Price sliding allows orders submitted at impermissible prices to be booked in a sensible and convenient way.

What is changing in regard to price sliding?

Pending review by the Securities and Exchange Commission (SEC), members submitting orders through OUCH ports will optionally be able to configure these ports to automatically resubmit their orders when a previously impermissible price becomes available. Previously, OUCH ports would either leave re-priced orders on the book or cancel them back to the member.

When an order is automatically resubmitted it will:

• receive a new sequence number and timestamp to determine time priority;
• maintain priority among other similarly price slid orders;
• not be guaranteed time priority over other incoming orders at the same price level.

What are Benchmark Orders?

Pending approval by the SEC, Benchmark Orders are new routing strategies designed to simulate various common intraday trading strategies within the convenient and familiar NASDAQ order submission framework. In general, Benchmark Order types affect a series of executions over time while balancing the countervailing goals of mitigating price impact and getting shares done.

How do I submit a Benchmark Order?

Submit an order via RASH or FIX with one of the available Benchmark Order ExecBroker instructions (see below), filling out optional tags as appropriate.

• VWAP: Volume-weighted average price
• TWAP: Time-weighted average price
• PVOL: Percent of Volume (FIX Only)
  • Use FIX tag 20004 to specify target percent of volume
• PV15, PV20, PV25, PV33: Percent of Volume (RASHport)
• Last 2 characters identify the target percent of volume, i.e., PV15 has a target of 15 percent. Only these 4 target percents are available at this time.

What protocols can be used to enter Benchmark Order types?

RASHport and RASH FIX will both be supported. RASH FIX will provide complete control of benchmark order parameters including start time, end time, percent of volume, minimum and maximum volume targets and more. RASHport will provide a compact interface for controlling many of the same parameters. Please refer to the FIX and RASHport protocols for more information on order submission.

What is new in OUCH versions 4.2 and 3.3?

NASDAQ OMX will be making two new versions of OUCH available: 4.2 (binary) and 3.3 (ASCII). These will support two new features:

• BBO Flag- a new field on order acknowledgements that indicates the "Weighting Factor" for the submitted order. The Weighting Factor is determined by the percent difference of the order's limit price from the National Best Bid and Offer (NBBO). This weighting will be used by NASDAQ OMX to calculate "weighted order to trade" ratios per the announced Excessive Messaging Policy. Members will be able to use the BBO flag to calculate their weighted order counts in real-time.
• Modify Order Message- a new message type used to request modifications that do not affect order priority on the book. Modify Order Messages are restricted to the following message details:
• Buy/Sell Indicator: Members may modify the long/short marking of sell orders. Members may not use the Modify Order message to change sell, sell short, or sell short exempt orders to buy orders.
• Shares: Members may specify the total number of shares liable, inclusive of previous executions and Self Match Prevention decremented shares on this order chain. Must be greater than zero and less than 1,000,000.
• Minimum Quantity: Minimum number of shares to execute on the modified order.
• Time in Force: The number of seconds that this modification should live before being automatically canceled.
• Order Priority Message- a new message type indicating an order's priority has been adjusted by the system. Specifically, this will identify price slid orders that have been re-entered by the system through the new automatic resubmission process.

How has order entry changed for IPOs?

On Friday, April 20, 2012, NASDAQ began accepting orders in IPO securities beginning at system start-up, provided those orders are marked Time-in-Force of DAY and designated for holding through entry via RASH or FIX ports. These orders are held in an un-displayed state until the quoting period begins, at which point they are entered into the system. Orders held in this manner do not receive time priority compared to other orders entered at the start of the Display-Only period. As of Friday, May 11, 2012, these orders can carry a CrossTradeFlag instruction (tag 9355) of either "O" (opening cross) or null.

Please be advised that orders submitted before the quoting period will not receive an acknowledgement until the beginning of the quoting period. If this is problematic, firms may opt-in individual ports to receive a pending acknowledgement message at the time of order submission. To enable this behavior, please contact NASDAQ OMX Trade Desk at +1 212 231 5100.

How can members test the changes to IPO order entry?

NASDAQ will simulate an IPO in symbol ZXZZT. The quoting period will begin at 10:05 a.m., Eastern Time (ET) for an anticipated 10:20 a.m. ET IPO cross. For the purposes of the test, firms should submit DAY orders beginning at system startup via configured RASH or FIX ports.

When is testing available?

On Saturday, May 12, 2012, NASDAQ OMX production systems will be available for pre-market trading in all securities at 9:00 a.m., ET. On NASDAQ the pre-market trading is followed by a market open at 9:30 a.m., ET and a market close event will be scheduled for 12:00 p.m., ET.

Do customers need to register for the test?

Yes, firms should email NASDAQ OMX Trading Services to register for the test.

Who should customers contact if they have questions during testing?

Customers should contact the NASDAQ OMX Trade Desk at +1 212 231 5100.

Where can I find additional information?

• Refer to the Trading Specifications page on the NASDAQ OMX Trader^® website.
• Contact NASDAQ OMX Trading Services at +1 212 231 5180.