FR 2025-03964

Editorial Commentary on the SEC Notice of Filing for IntelligentCross ATS

General Summary

The document in question is a notice from the Securities and Exchange Commission (SEC) regarding a partial amendment to a proposed rule change filed by the Financial Industry Regulatory Authority, Inc. (FINRA). This amendment involves the inclusion of IntelligentCross alternative trading system (ATS) as a new entrant to the Alternative Display Facility (ADF). Such facilities are important as they allow broker-dealers to display quotes and negotiate trades outside of traditional stock exchanges, providing more options for trading securities. The proposed rule change does not involve altering the existing FINRA rules but aims to update the processes for quotation display and matching in the IntelligentCross system.

In 2023, the SEC’s Division of Trading and Markets initially approved the rule change, but the decision was later stayed for further review by the Commission itself, which is now inviting public comments on the amended proposal. This amendment is motivated by concerns raised from several parties regarding the fairness and transparency of IntelligentCross's matching process. IntelligentCross responded by modifying its match priority criteria to prioritize orders based on a combination of price, display type, and time of receipt, moving towards a standardized system used by other trading venues. The overall goal of these changes is to streamline the matching process and enhance the fairness and transparency of trade executions.

Significant Issues or Concerns

While the document outlines the modifications to the IntelligentCross system aimed at addressing concerns, there remains a lack of detailed information on how exactly the raised issues by parties like Citadel Securities and FIA Principal Traders Group will be resolved. The specific concerns involve the operation of the IntelligentCross matching process, its impact on accessibility, and how a certain "price-sliding mechanism" might affect trade executions. The document indicates that modifications have been made to address these concerns but is light on the details of the resolution, which could leave some stakeholders and the general public seeking further clarification.

Understanding the technical aspects and implications of the changes, such as the shift to a price/display/time priority regime, may be challenging for readers without a background in financial markets. The use of specialized jargon and complex examples could be approached with more straightforward explanations to improve accessibility.

Potential Public Impact

For the general public with an interest in or reliance on financial markets, this proposed rule change signifies efforts by FINRA, in collaboration with the SEC and private trading systems like IntelligentCross, to enhance the efficiency, transparency, and fairness of alternative trading venues. These venues provide more options for executing trades beyond traditional exchanges.

The proposed amendment specifically addresses concerns raised by stakeholders, such as how IntelligentCross matches buying and selling orders, which could enhance confidence in the fairness of the trading process among investors. While the document opens a window of public commentary, the overall impact of such regulatory changes generally aims at creating a more equitable and transparent trading environment, which ideally benefits the broader public by fostering a fairer market landscape.

However, the intrinsic complexity and reliance on specific technical systems like the ASPEN Fee/Fee matching model and the price-time priority mechanism make it less accessible to a general audience. A simplified version or summary of the proposed rule change, avoiding technical jargon and focusing on what the changes mean for everyday investors, would be beneficial to ensure that the public fully understands the implications of this regulatory review and potential rule change.

Commentary on Financial References in the FINRA Notice

The Financial Industry Regulatory Authority, Inc. (FINRA) has proposed a rule change to add IntelligentCross alternative trading system (ATS) as a new entrant to the Alternative Display Facility (ADF). The notice, dated March 13, 2025, outlines several revisions to the proposed rule change and invites public comments.

Financial References Analysis

The document contains several references to financial transactions and terms involving IntelligentCross and its ASPEN Fee/Fee matching model:

1. Example 1:
2. Subscriber A's Order: A displayable order for 100 shares at a limit price of $10.00 to sell XYZ stock.
3. Subscriber B's Order: A displayable order for 100 shares at a limit price of $10.00 to buy XYZ stock.
4. Subscriber C's Order (before modification):
   • Non-displayable 100 shares at a limit price of $9.99 for selling XYZ stock.
5. Prior to Change: Subscriber A would have matched 100 shares with Subscriber B at $10.00. Subscriber C's more aggressively priced order would not match due to time priority.

6. After Change: Subscriber B will match 100 shares with Subscriber C at $10.00 despite the later time of arrival, as Subscriber C has the more aggressively priced order.

7. Example 2:

8. Subscriber B: Changes the displayable order to buy 200 shares (instead of 100 shares) at a limit of $10.00.
9. Prior to Change: Similar to before, Subscriber A matches 100 shares with Subscriber B at $10.00 first.

10. Under Modified Match Priority Criteria: Subscriber C first matches 100 shares with Subscriber B at $10.00, rewarding the more aggressively priced order.

11. Example 3: Same conditions as Example 1 but with Subscriber C canceling its order before the match event.

12. Outcome: Under both the previous and modified criteria, Subscriber A matches 100 shares with Subscriber B at $10.00. Subscriber C's cancellation means their order does not participate in the match event.

13. Example 4:

14. Varying Circumstance: Subscriber A's order is non-displayed with a limit price of $10.00. Subscriber C’s sell limit order at a price of $10.00 is displayed.
15. Prior to and Modified Match Priority Criteria: In both scenarios, Subscriber C with the displayed order matches 100 shares with Subscriber B at $10.00 since displayed orders have priority over non-displayed orders.

In all presented examples, the adjustments to the match priority criteria by IntelligentCross under the ASPEN Fee/Fee model play a significant role in how orders are prioritized and executed. The transition to a price/display/time priority regime means more attention is given to the price and display characteristics of an order, even taking precedence over the order's arrival time.

These financial details are crucial as they impact how trading takes place on the IntelligentCross platform, potentially influencing the strategy that participants use when engaging with the market, and how accessible certain types of quotes are at any given time. The modifications are aimed at aligning IntelligentCross's processes with those of other trading venues that prioritize displayed liquidity, addressing concerns related to its previous matching mechanisms including the so-called “price-sliding mechanism” and its effects on order execution and prioritization. By specifying changes such as the introduction of price/display/time priority, IntelligentCross aims to foster transparency and better align with broader market practices, ensuring that orders are matched more equitably based on price aggressiveness and display priority.