Direct Edge Trading Notice #12-64: EDGA And EDGX Behavior During Locked And Crossed Markets

Please be advised that EDGA Exchange, Inc. (EDGA^®) and EDGX Exchange, Inc. (EDGX^®) have discovered two separate discrepancies between their order priority rules, EDGA Rule 11.8(a) and EDGX Rule 11.8(a), and existing functionality on their respective Matching Engines that may occur during locked or crossed markets.

First, Intermarket Sweep Orders (ISOs) to sell that permissibly lock the National Best Bid and Offer (NBBO) on EDGA, as well as EDGA Only orders to sell that were ranked on the EDGA Book at the locking price prior to the posting of an ISO that locks the NBBO, may be ranked in priority behind certain sell orders that arrive after the locked NBBO is established.  This discrepancy occurs only on EDGA and has been in effect since approximately August 2011.  Direct Edge is currently developing changes to the EDGA Matching Engine designed to ensure that orders are executed in the proper sequence precisely as set forth in EDGA Rule 11.8(a).  These changes are expected to be implemented on or about January 14, 2013.   

Second, during a crossed market, odd-lot orders or other non-displayed orders may not execute when a contra-side ISO attempts to sweep the Book through their price.  This discrepancy may occur on either EDGA or EDGX and has been in effect since the launch of the Exchanges in July 2010.  Direct Edge is currently developing changes to the EDGA and EDGX Matching Engines designed to ensure that orders are executed in the proper sequence precisely as set forth in their respective rules.  These changes are expected to be implemented on or about February 4, 2013.

A follow-up Trading Notice will be issued when each of the changes described above has been fully tested and implemented.