As noted in a letter last week to Mary Schapiro, chairman of the Securities and Exchange Commission, Nasdaq OMX has been examining questions related to the increasing prevalence of “flash” order types in the cash equities market, as well as a related trend in US markets towards “darkness” – activity or orders not transparent to the full market.
In looking at the use of flash order types, it is important to understand where they came from, why they exist and why electronic markets including Nasdaq OMX have adopted them. Flash orders originated from and remain an accepted practice of exchanges with a trading floor, with the effectiveness of the “flash” limited by the distance a human voice could travel. These voice flash orders are the raison d'être for people who work on the floor of an exchange. As technology was added to floor trading operations, automation of these flash capabilities occurred through systems such as Block Talk on the NYSE. In addition, fully electronic versions of this floor flash capability were introduced by the CBSX and Direct Edge.
After full consultation with the SEC, Nasdaq OMX was one of the last groups to offer flash orders. Most importantly, we used our technology to create a flash order type that all investors could see and use.