SEC Charges Exchanges with Failing to Describe Order Types Properly

The SEC announced that two exchanges (the "Exchanges") violated Sections 19(b)(1) and 19(g)(1) of the Exchange Act by failing to describe their order types completely. In particular, the Exhanges were charged with (i) failing to file proposed rules and rule changes that completely and accurately described how certain order types operated and impacted order handling and trading on the Exchanges, and (ii) failing to comply with the Exchanges' own rules by offering order types, which were not completely and accurately described in the rules approved by the SEC.

An SEC investigation found that, while operating under rules that described only a single "price sliding" process for handling buy or sell orders (a process that adjusts an order to avoid a violation of Regulation of the National Market System ("Regulation NMS") by locking or crossing a protected quotation), the Exchanges actually offered three variations of "price sliding" order types. According to the SEC, the Exchanges' rules (i) did not completely and accurately describe the prices at which those orders would be ranked and executed in certain circumstances and (ii) failed to describe the execution priority of the three order types relative to each other and to other order types. Additionally, the SEC further found that the Exchanges only disclosed information about how those order types operated to certain members, including certain high-frequency trading firms.

See: SEC Order; SEC Press Release. See also: Statement.