Technical notes on HFT orders

To facilitate HFT trading and rebate strategies exchanges/ECNs introduced order types that allow to send limit orders that will:
  • be posted only (order will not take liquidity against resting orders)
  • can be temporarily hidden in order to comply with RegNMS but will light up asap (this helps to get to the top of the queue without resorting to bombarding exchange with new orders at the time quote moves)
Following is description of the functionality offered by major market centers in this area.

BATS:

To send limit order that will potentially lock NBBO, but will be posted at submitted price and will light up as soon as possible (based on 04/20/2009 conversation with BATS trading desk):
  • set RoutingInst (9303) = P (BATS Only Post Only)
  • do not set 9479 (DisplayIndicator)
Order will reject rather then remove liquidity if there is something on the other side.

So this order should be sent in the following scenario: Market is one cent wide and is about to tick down. BATS bid fades. If we want to be at the top of the queue on the offer on the new quote, we would send this order with new offer. The order will be booked, but will not display until other markets fade the old bid.

DIRECT EDGE

In Direct Edge terminology there is "Hide-Not-Slide" order that is used in the fashion similar to "BATS Only Post Only". If on entry order locks other market it will be booked at the entry price, but will be hidden to comply with RegNMS. As soon as price level is free, order will light up.

Hide Not Slide:
If, upon entry, a Hide Not Slide order is locking or crossing the NBBO, it will be ranked at the locking price and displayed 1 tick worse than the contra quote. This order retains its book priority until filled, cancelled or expired. Alternative posting options to Hide Not Slide are: Price Adjust (new book priority), Single Re-Price, or Cancel

  • Tag 9215 (LiqProvOnly) Liquidity Provider Flag = Y (Add Liquidity only)
  • Tag 18 (ExecInst) = h (Hide Not Slide); if locking or crossing the NBBO, order will be adjusted to post as follows: Hidden orders will be booked at the locking price. Displayed orders will be displayed at a compliant price (1 tick worse than the NBBO) and also be booked as hidden at the locking price.

ARCA

Arca has a PNP Blind (Post-no-preference Blind) order type to support posting functionality. This is supported on both FIX and ArcaDirect interfaces. ArcaDirect offers faster order entry interface with more consistent latency (better holds at peak times).

The PNP-Blind orders is similar to Hide-Not-Slide (Direct Edge) and Bats-only-Post-only (Bats) order types.

The order should be designated as follows:
  • Extended Execution Instructions field = 'A' (Add liquidity only)
  • ExtendedPNP = 'B' (Extended PNP Blind)
Definition of the "Post No Preference Blind" (PNP B) Order:
Marketable Contra Orders will first execute against the PNP B Orders, then the rest of the book. PNP B Orders will be ranked in time priority regardless of the price of the order when they are
blind. When the PBBO moves away from the price of the PNP B but the prices continue to overlap; the PNP B will remain blind but adjust its price to the PBBO. When the PBBO moves away from the price of the PNP B and there is no longer price overlap, the PNP lights up and becomes a regular limit order including standing its ground.

NASDAQ

Nasdaq OUCH supports "Post Only" orders but does not support order type that will hold order at entry price and will temporary hide order to comply with RegNMS, automatically lighting it up when price level frees up. See Nasdaq OUCH analysis for details.

To submit the order specify: Display = "P" (Post Only)

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