Nasdaq Withdraws Controversial Retail Post-Only Order Proposal
“On October 13, 2016, The Nasdaq Stock Market LLC (“Exchange”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”) and Rule 19b-4 thereunder, a proposed rule change to amend Exchange Rule 4702 to adopt a new Retail Post-Only Order. The proposed rule change was published for comment in the Federal Register on November 1, 2016. On December 14, 2016, pursuant to Section 19(b)(2) of the Act, the Commission designated a longer period within which to approve the proposed rule change, disapprove the proposed rule change, or institute proceedings to determine whether to disapprove the proposed rule change. The Commission received one comment letter (the“Themis Trading” letter ) on the proposed rule change. On January 20, 2017, the Exchange withdrew the proposed rule change (SR-NASDAQ-2016-141).”
We are not sure why Nasdaq withdrew the proposal but can only conclude that our letter alerted the SEC to the questionable behavior of the order type. We suspect that the SEC confronted Nasdaq about some of the accusations in our letter and Nasdaq then withdrew the proposal since they couldn’t justify creating an order type which would violate a brokers best execution responsibility. The retail post-only order type was just another scheme developed by Nasdaq to help brokers avoid paying access fees. In our comment letter, we wrote:
“We believe that the retail post-only order type violates a broker’s best execution responsibility, as it cancels an order which would have received a fill had it been sent without a post-only order type. This order type is another example of how access fees and payment for order flow have distorted price discovery and sacrificed best execution.”
We are very appreciative that the SEC did not just quickly approve this order type but rather took the time to read our letter and requested extra time to make a decision. We’re thrilled that this proposal, which could have harmed retail investors, will not be part of our market. Nasdaq’s withdrawal of this proposal proves that the comment letter process works.