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Technology

Technology

Nasdaq gets SEC nod for first exchange AI-driven order type

The Nasdaq logo is displayed at the Nasdaq Market site in Times Square in New York City, U.S., Decem... The Nasdaq logo is displayed at the Nasdaq Market site in Times Square in New York City, U.S., December 3, 2021. REUTERS/Jeenah Moon
The Nasdaq logo is displayed at the Nasdaq Market site in Times Square in New York City, U.S., Decem... The Nasdaq logo is displayed at the Nasdaq Market site in Times Square in New York City, U.S., December 3, 2021. REUTERS/Jeenah Moon

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Nasdaq gets SEC nod for first exchange AI-driven order type. The U.S. Securities and Exchange Commission has permitted Nasdaq Inc. (NDAQ.O) to introduce the first exchange artificial intelligence-driven order type. If successful, this initiative might further boost the efficiency of the already brisk stock market.

According to the exchange, the approval of the dynamic midpoint extended life order (M-ELO) will improve trading results for investors by increasing the frequency at which orders are matched and reducing the market effect.
The SEC chose not to respond.

Trades are handled by exchanges using order types, which are preprogrammed instructions traders use. The announcement comes at a time when interest in artificial intelligence and its many applications in the financial sector is rising.

M-ELO is a strategic order type that was first introduced in 2018 and uses a 10-millisecond waiting interval to allow investors with longer-term perspectives to trade with one another.
The dynamic version would monitor market activity and alter the holding period in real-time to enhance the quality of execution and the proportion of orders completed in the market. Reinforcement learning is an AI approach.

According to Nasdaq’s study, real-time AI order types have fill rates up 20.3% and mark-outs down 11.4%, demonstrating the benefits AI-powered solutions may have on the capital markets.

According to Owen Lau, senior analyst at Oppenheimer & Co., “This new order type can increase order fill rate and reduce holding time if successfully implemented, which could help Nasdaq take market share from other exchange operators.”


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