Cboe Global Markets plans to introduce a speed bump to protect equity market investors and liquidity providers from opportunistic traders.
In a June 7 filing to the Securities and Exchange Commission, Cboe said a new Liquidity Provider Protection feature, known as LP2, on its Cboe EDGA Equities Exchange is designed to enhance liquidity and enable market-makers to make better markets in stocks traded on the exchange.
The idea, which is still open to SEC and industry feedback, is that once a liquidity-taking order reaches EDGA it would wait four milliseconds before trading with resting orders on the order book. That would enable liquidity providers to take more risk and quote tighter spreads with greater size by giving them time to reprice resting orders before opportunistic traders can trade at stale prices, according to the company, which said that LP2 would be the first-ever delay mechanism in the U.S. equities market promoting price forming, displayed liquidity. Unlike similar mechanisms introduced by other exchanges, this one would be asymmetric, protecting liquidity providers, Cboe said.
Bryan Harkins, executive vice president and co-head of Cboe's markets division, said in a statement that the proposal "is the result of vital and ongoing consultation with customers and investors, and we will continue to actively seek out ways to deliver innovative and flexible solutions that best meet their needs."