2

In an effort to better understand how market exchanges work, I was attempting to learn how orders get executed on NASDAQ. The following quote is from their website (click here to view):

NASDAQ features a price/time priority model where the execution logic is fair and transparent for all market participants. All displayed limit orders are treated equally and executed in the order in which they were received at the same price. Non-displayed shares are executed after displayed shares in the order in which they were received at that price.

Could someone explain what display and non-display limit orders are? I know that placing a limit order is essentially offering a bid or ask price for a transaction, but I don't really know what display and non-display mean...

3

A "display" order in this case is a visible order.

A "non-display" is a hidden order.

Visible orders are heavily regulated. Hidden orders are less so.

A visible order is prohibited from locking or crossing the market. This means that if an offer at $X is already on another exchange, another exchange cannot post a bid for $X or higher, creating a locked or crossed market respectively. If a trader tries to, the order will be slidden until the order would not longer cause a lock or cross, where it will be moved back up automatically to where the trader originally wished it to be. Slides are considered cancellations and will reset the timestamp. These regulations ensure that there is a bid/ask spread, guaranteeing the traders the cost of that spread in a size at least the minimum tick.

Hidden orders have no such regulation. It was some big "secret" in the HFT world for a while that one could effectively jump the line by posting "hide not slide" orders rather than visible orders because a hidden order will not be slidden, resetting the timestamp. This allows a visible order placed at an earlier absolute time to be considered lower in price-time priority after sliding.

When trading derivatives, if one gets the sense that market makers are holding out, not moving the derivative with the underlying, one can change to a hidden order and most likely be filled when the market makers improve their orders when it appears that one's order has gone away.

2

I would say that non-displayed orders would be hidden orders, however I have never heard them being termed this way.

A hidden order is basically a large order placed usually by an institution to buy/sell a large number of shares. They place the order as a hidden order so that it cannot be seen in the order book so that it does not move the market due to its size.

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .