Wednesday, June 21

Programmatic Ignorance Enforcer

Among the NYSE Rule Changes leading to full implementation of the Hybrid Market: a new rule, with a pilot program starting today, to insulate the information that flows into proprietary specialist trading from any information the specialist picks up in the course of trading on behalf of clients.
As approved in the Hybrid Market Initiative, the Specialist Algorithm is permitted to send messages to the Display Book via the API to quote or trade on behalf of the specialist?s proprietary interest. The Specialist Algorithm will generate these quoting or trading messages in reaction to specific types of information it will have access to. This information includes specialist dealer position, existing quotes, publicly available information the specialist chooses to supply to the algorithm, incoming orders as they are entering Exchange systems, and information about orders on the Display Book such as limit orders, percentage orders, stop orders, and auction limit and auction market orders. This latter information stream is known as ?state of the book? information. NYSE Rule 104 currently allows specialists to send quoting messages to the Display Book via an external application interface (?API?) in exchange traded funds (?ETFs?) and Trust Issued Receipts. These quoting messages are not based on the system receipt of order or other information. This provision will be superseded by the Rule 104 amendment noted above when Phase II of the Hybrid Market is fully implemented. Prior to full Phase II implementation, the Exchange is commencing a pilot permitting specialists to send algorithmic quoting messages (?s-Quotes?) to the Display Book in all types of securities without the specialists having access to information about incoming orders as they are entering Exchange systems. This pilot will begin on June 21, 2006. The Exchange believes that s-Quoting in this fashion will enable specialists and the Exchange to obtain valuable real time experience with respect to the use of specialist proprietary algorithms.
Okay, white-hat hackers: how are you going to game this?


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