Oslo Bourse Penalizes Unexecuted Orders From Automated Trading

I heard the Nas OMX is also considering this for the US market (the slew of cancellations immediately preceding the start of Facebook trading didn't help the case for algo traders). Personally I think this is a net positive for the markets that, if successful, could help stave off a financial transaction tax.

http://www.businessweek.com/news/20...izes-unexecuted-orders-from-automated-trading

Bloomberg News

Oslo Bourse Penalizes Unexecuted Orders From Automated Trading

By Peter Levring on May 24, 2012

Oslo’s stock exchange will introduce a fee designed to limit computer-generated orders after equity strategies based on mathematical models boosted the number of withdrawn trades and clouded market transparency.

The fee, which will be enforced from Sept. 1, will apply to any order exceeding 70 for each executed trade and will mainly target “orders which are canceled or changed within a second, without contributing to improving pricing or volumes,” Oslo Boers ASA said in a statement today. The exchange will charge 0.05 krone ($0.01) for every unexecuted order exceeding the 1:70 ratio.

Trading based on mathematical models, known as algorithmic and high-frequency trading, has come under scrutiny after a May 2010 crash that briefly erased $862 billion from the value of U.S. shares. Traders and other professional investors withdrew bids as the selloff worsened, according to a September 2010 report from the Securities and Exchange Commission and the Commodity Futures Trading Commission.

“There are no initial costs associated with issuing a disproportionately large number of orders, while it adds indirect costs, which all of the market has to cover,” Bente A. Landsnes, chief executive officer of the Oslo exchange, said in the statement. As the new fee will limit unexecuted orders “the market will become more efficient to the benefit of all agents.”

Nasdaq OMX Group Inc. (NDAQ) (NDAQ), which manages 75 percent of all Nordic stock trading, presented a similar move in September 2011. The exchange, which runs the Copenhagen, Helsinki, Reykjavik and Stockholm bourses, introduced a 1:250 trade-to- order ratio fee to protect investors against what it called malfunctions in the market.

 

nice. can't wait to see what effect this has on the market's microstructure...

 

Well .. instead of liquidity that disappears, there just won't be any there.

Got volatility?

 

can they just try this in US? what's the big deal? launch pilot program on 10-100 stocks and see,how it's works. collect the data.it's very simple imo. all they need is willingness.

oh...i forgot..probably half of all trades are now executed not on exchanges,but some place else..dark pools..WS is prepared for that long time ago..

 

What liquidity is there in cancelled orders anyway?

 

Already there on CME products - as fines.

 

They can still be hit with big market orders. No way anyone quoting / cancelling can avoid that.

 

As long as you want to execute your very large order in a single shot paying a huge price for the slippage...

 

Good point. I've already been affected by that first hand, and it caused me to shut down that particular strategy.

 

Yep..

Catch 22 for VWAP / IS etc algo execution strategies.

If they see you coming slowly they cancel & you slip.

If you want to get it done all at once you, you slip.

Liquidity ain't free