Nasdaq receives SEC approval for first exchange AI-driven order type

NEW YORK, Sept 8 (Reuters) – Nasdaq Inc. ( NDAQ.O ) said on Friday it has received approval from the U.S. Securities and Exchange Commission to launch the first exchange artificial intelligence-driven order type, which, if successful, would be possible. It further enhances the efficiency of the already booming stock market.

The approval of Dynamic Midpoint Extended Life Order (M-ELO) will speed up the frequency of order matching and reduce market impact, leading to better trading results for investors, the exchange said.

The SEC declined to comment.

Order types are programmed instructions that traders use to tell the exchange how to handle their trades. The news comes amid growing interest in artificial intelligence and the various ways it can be used in the capital markets.

M-ELO, first released in 2018, is a strategic order type that enables investors with long-term horizons to trade with each other using a 10-millisecond waiting period.

A dynamic version of this will use an AI technique known as reinforcement learning to observe market behavior and make real-time adjustments to that holding period to improve execution quality and the percentage of orders filled in the market.

Nasdaq’s research shows that real-time AI order types have seen a 20.3% increase in fill rates and an 11.4% decrease in mark-outs, which AI-powered solutions can improve capital markets.

“This new order type could increase order fill rates and, if successfully implemented, reduce holding times, which could help Nasdaq take market shares from other exchange operators,” said Owen Lau, senior analyst at Oppenheimer & Co.

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