The U.S. Securities and Exchange Commission (SEC) has approved Nasdaq’s first-ever exchange artificial intelligence-focused order type. With this innovative approach, Nasdaq aims to execute stock trading more efficiently and with less market impact.
Delivering Better and More Efficient Trading to Investors
This new order type is called the “Dynamic Midpoint Extended Life Order,” or simply “M-ELO.” Nasdaq states that the approval of M-ELO will result in faster matching of trade orders and minimize market impact. This could allow investors to achieve better trading outcomes.
Orders Will Be Filled Faster
The dynamic version of M-ELO will use artificial intelligence techniques to monitor market behavior and make real-time adjustments to enhance execution quality. These AI techniques will particularly utilize a method known as reinforcement learning. This will assist in filling orders in a better and faster manner.
“This new order type, if successfully implemented, can potentially increase order fill rates and reduce latency, which can help Nasdaq gain market share over other currency operators.”Owen Lau, Senior Analyst at Oppenheimer & Co.
Significant Differences Are Evident
Lastly, Nasdaq’s research shows that this new AI-based order type offers significant advantages. Impressive results include a 20.3% increase in fill rates and an 11.4% decrease in mark-outs.