A recent proposal by Cboe EDGA to implement an asymmetric speed bump on a U.S. stock exchange has faced criticism from a broad range of financial market participants, including asset managers, broker-dealers, trading firms, and financial market advocacy groups, as well as the Committee on Capital Markets Regulation (“the Committee”).
In securities markets, a speed bump generally refers to an intentional time-delay between the receipt of an order and its execution by a marketplace. Speed bumps can either be symmetric, whereby the delay is imposed equally to all market participants and all orders, or asymmetric, whereby the delay is not imposed equally on certain exchange-designated market participants or not imposed on certain order types. Asymmetric speed bumps confer an unequal trading advantage on exempt market participants that have additional time to obtain and react to market information that is unavailable to other market participants that are subject to the speed bump/time-delay.
The Committee has repeatedly noted its opposition to asymmetric speed bumps in U.S. equity markets. We believe such speed bumps as they have been proposed confer unequal trading privileges to a sub-class of market participants that are exempt from the speed bump while potentially harming market quality and U.S. equities investors overall. In this Nothing But The Facts statement, we seek to clarify four key facts about asymmetric speed bumps:
- Asymmetric speed bumps are unprecedented on U.S. stock exchanges.
- Asymmetric speed bumps confer an advantage on a select group of traders.
- Asymmetric speed bumps can lead to “last look” liquidity.
- Asymmetric speed bumps increase market complexity.
Read the full statement here.