March 17, 2015
The Commission has valid concerns that sophisticated market participants may utilize certain forms of orders such as pegging orders outside a given parameter to discover otherwise unavailable information to the detriment of other participants. As the attached article suggests, open market manipulation through bidding, instantaneous orders, order stuffing or other means of affecting market prices and information are going to be used if available and feasible, especially with the emergence of new technology and computer controlled data streams and bidding protocols.
For that reason, the Commission should not approve any change which facilitates open market manipulation or bidding which games exchange systems to the detriment of some participants unless the party proposing the exchange shows that the manipulative behavior is not possible due to safeguards or requirements within the bidding system, or is detectable for correction soon after such manipulation would occur. The comments above refer to the Commission's concerns and potential for disapproval of pegging bids which could be used for manipulation or impermissible or unwarranted data gathering.
As to certain other proposals, it appears that the limitations to be proposed so that GTC orders are no longer permissible, limit market participant ability to have control presently available over the nature of orders, so a reason for the proposed new limitations on GTC, removal of availability of GTC market orders, for example, is given. If the exchange feels that market orders which can be canceled are detrimental, then the reasons for that detriment should be set forth. Other proposed changes, such as prohibiting Minimum Transaction Volume (MTV) orders which are greater in size than MPL volume should also be substantiated as to the reasons for the change. Likewise, limiting GTC orders so that execution may not occur outside trading hours does not appear to be a step forward in terms of making more options for execution available to market participants.
See the attachment, and consider whether the types of gaming or manipulation discussed would be facilitated or prohibited or made more difficult by the changes proposed. Note that the version of this article which was publicly available for download and attachment may not represent the final published version, but the fundamental concepts discussed appear to be valid within the attached version.
[Copyrighted material redacted. Author cites:
Cao, Yi, Yuhua Li, Ammar Belatreche,, and T.M. McGinnity. "Adaptive Hidden Markov Model With Anomaly States for Price Manipulation Detection." IEEE Transactions on Neural Networks and Learning Systems 26.2 (2014): 318-30. IEEE Xplore. 15 Jan. 2015. Web. 20 Mar. 2015.]