Seek Out Tradebook’s Ray Tierney, Give Him A Fist-Bump, and Toss Him A Schlitz!

Bloomberg vs NYSE II – Fist Bump and a Schlitz

A few weeks back, we pointed out an outstanding comment letter written by Bloomberg’s Gary Stone and Ray Tierney III, written in response to NYSE’s intent to a) create a Day ISO and b) start using Add Liquidity Only (ALO) modifiers on limit orders. You can read that September 24th note here.


Just days after the Bloomberg letter was filed with the SEC, NYSE responded. Their comment letter addressed objections raised not only by Bloomberg’s comment letter, but also concerns raised by Haim Bodek in his separate comment letter. Essentially, NYSE’s position is:


–          That the order types do promote fair trade, are consistent with Reg NMS Rule 610(d). These order types/modifiers are not Reg NMS concerns. These order types encourage displayed liquidity.

–          Bloomberg and Bodek bring up great Reg NMS discussion points, but NYSE’s proposal is not the proper forum for them – the review of those letters should be delayed, and their assertions addressed at a later time and in a general forum.

–          The order types do not queue-jump as Bodek asserts, and while they could be used to determine existence of a hidden order on NYSE, they can’t be used to ascertain how much is hidden.

–          The other exchanges have these order types – it would be unfair to just pick on NYSE.


And Bloomberg has just responded to NYSE’s response:


–          The ALO and Day ISO absolutely are Reg NMS concerns. The Day ISO is not a debate point; it violates Reg NMS!

–          In 2004 Bloomberg commented to the SEC that Rule 610/611 were unnecessary, and if Bloomberg wanted to talk about removing the ban on locked and crossed markets… then NYSE would be correct in their position that a later and more general forum is better for “market structure issues.” However Bloomberg now is only asking that the SEC be consistent and force NYSE (and other exchanges) to follow the Reg NMS rules implemented by the SEC.

–          Bloomberg asks the SEC to provide guidance to the market- to all exchanges using ALO and Day ISO. Bloomberg agrees with NYSE, and reminds them that in the first Bloomberg letter it was stressed that a ruling and guidance should apply to all market centers.


Bloomberg also makes one other point we think is very important. Embedded in all other exchanges’ / market centers’ rationale for allowing Post-only Day ISOs is reasoning that the responsibility for checking the Protected Bid and Offer (PBBO) and satisfying Rule 610/611 is being performed by the participant entering the order. Bloomberg says differently; they contend it would be improper for an exchange to abrogate that responsibility to a trading firm member.  They point out that only SRO’s are allowed to “ship and post” in Reg NMS.


“The Commission was quite clear that only SROs could “ship and post” because compliance with Rule 610 is solely an SRO responsibility due to the fact that the SRO is the only entity in the national market that can post a protected quote.


For what it’s worth, if any of you read Nanex’s (Eric Hunsader) blog even occasionally, this is a point he has very consistently made for years.


Bloomberg’s response to NYSE’s response to Bloomberg’s response to NYSE’s SEC order type proposal for ALO and Day ISO (phew – say that five times quickly!) is well thought out, and expertly documented.


Bloomberg’s positions are correct in our view. We are pleased to see the highly credible Bloomberg Tradebook take leadership in market structure issues. They join the ranks of Morgan Stanley’s Silverman and Patel, and we should collectively thank all of them.


If you happen to bump into Ray Tierney, please be sure to give him a fist-bump and toss him a Schlitz!