Pilot Program Approved for LEAD Speed Bump

We’re happy to announce that the Securities and Exchange Commission (SEC) yesterday approved a pilot program for our Liquidity Enhancing Access Delayed (LEAD). The pilot program — which CHX plans to implement on February 1, 2018 — has a timeframe of 24 months, during which time CHX will collect and publicly disclose data on LEAD’s market impact.

LEAD was first announced in February of this year, taking the place of an initial speed bump proposal called Liquidity Taking Access Delay (LTAD). LEAD will implement a 350 microsecond speed bump that will apply to all orders, except for liquidity providing orders submitted by LEAD Market Makers (LMMs), a new class of market maker subject to heightened quoting and trading obligations on a security-by-security basis. The speed bump will provide LMMs with an unprecedented risk management tool to protect against predatory trading strategies, such as latency arbitrage,* which leverage microsecond speed advantages to pick-off stale quotes during times of market transition. By deemphasizing speed as a key to trading success, LEAD will encourage LMMs to display larger orders at aggressive prices, which will, in turn, enhance displayed liquidity and price discovery to the benefit of the investing public.

*(In our filing with the SEC, “latency arbitrage” is defined as “the practice of exploiting disparities in the price of a security or related securities that are being traded in different markets by taking advantage of the time it takes to access and respond to symmetric public information.”)

“We appreciate the opportunity to implement our pilot program and demonstrate LEAD’s positive effect on market quality,” said CHX CEO John Kerin. “We’re confident that our pilot program will curb latency arbitrage and will eventually become a standard CHX offering.”

You can view the full SEC approval order here. To learn more about LEAD, please visit http://www.chx.com/lead/.