trending Market Intelligence /marketintelligence/en/news-insights/trending/nXAFZ2lpcPJjKECWNC7yBQ2 content esgSubNav
In This List

Cboe prepares new tool to give retail investors edge over other traders

Podcast

Street Talk Episode 87

Blog

A New Dawn for European Bank M&A Top 5 Trends

Blog

Insight Weekly: US banks' loan growth; record share buybacks; utility M&A outlook

Blog

Banking Essentials Newsletter 2021: December Edition


Cboe prepares new tool to give retail investors edge over other traders

Cboe Global Markets Inc. will soon launch a new trading mechanism on one of its four stock exchanges in a bid to attract more mom-and-pop investors' orders.

The Chicago-based exchange operator, which is one of the largest in the U.S., has received regulatory sign-off on a new retail trading tool designed for its EDGX Exchange. The program is expected to go live in November, Cboe said in an Oct. 2 release.

SNL Image

Chicago-based Cboe Global Markets plans to launch a new trading program on its EDGX Exchange designed specifically to improve the execution quality of retail investors' orders.
Source: Associated Press

Using a distinct allocation model, the tool will push certain orders that are submitted on behalf of individual investors in front of similarly priced orders from other market participants, Cboe said. That marks a key distinction from most other U.S. stock exchanges, where orders are prioritized based on their arrival time at each distinct price point. By placing retail investors' orders ahead of others on EDGX, Cboe said there is a greater probability that retail investors' orders will be executed.

Cboe's retail priority program is designed to be used only by investors who do not place more than 390 equity orders per day on average during a calendar month for their own beneficial accounts. That equates to an order every minute from 9:30 a.m. to 4 p.m. ET.

There were some concerns within the trading community that Cboe's proposal could negatively impact institutional investors who represent individuals such as a pension fund or a retirement plan because certain speedy traders may be able to identify their orders based on EDGX data feeds. Sean Paylor, a trader at AJO LP, specifically called out those issues in a Sept. 16 comment letter to the SEC, while also raising concerns that Cboe's rule "blatantly discriminates between customers" by putting retail orders above those of other market participants.

The exchange has pushed back on the argument that institutional orders would be identifiable under its program, though.

In an Aug. 19 letter responding to industry feedback about its proposal, Cboe pointed out that "only a subset of retail orders would be required to be attributed," which the exchange wrote meant market participants would not be able to infer that any other order hails from an institution.

"In fact, such orders could be retail orders entered without a priority attribute, or indeed could have been entered on behalf of one of a myriad of investors that together comprise the U.S. equities ecosystem," Cboe wrote.