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Nasdaq Introduces Dynamic M-ELO Order Type Powered by AI to Enhance Exchange Efficiency

AI/MLNasdaq Introduces Dynamic M-ELO Order Type Powered by AI to Enhance Exchange Efficiency

Nasdaq has unveiled the Dynamic Midpoint Extended Life Order (M-ELO), an innovative order type powered by Artificial Intelligence (AI) that has received approval from the Securities and Exchange Commission (SEC). This development showcases Nasdaq’s commitment to leveraging advanced technologies to enhance exchange efficiency and performance.

The Dynamic M-ELO order type is designed to match counterparties with longer-term investment perspectives while introducing a mandatory short waiting period before trades can be executed. This feature ensures that only genuinely interested parties engage in transactions, thereby enhancing trade quality.

What sets the Dynamic M-ELO apart is its use of AI to make real-time adjustments to the holding periods for participants. This dynamic approach aims to improve fill rates and minimize market impact, with preliminary tests showing a volume-weighted improvement exceeding 30%. This innovation not only boosts liquidity but also improves execution quality.

The original M-ELO had a fixed holding period based on generic market conditions. However, feedback from market participants led to the development of the Dynamic M-ELO, which demonstrated a significant surge in fill rates and a decrease in mark-outs.

Tal Cohen, President of Market Platforms at Nasdaq, emphasized the company’s commitment to innovation and enhancing market quality. Kevin Kennedy, Executive Vice President of North American Trading Services at Nasdaq, highlighted the company’s investment in technology and data standardization, positioning it to harness AI for refining market efficiency.

Beyond order types, Nasdaq has also integrated predictive AI into its US options markets through the Strike Price Optimization Program. This program leverages AI to determine new strike listings more efficiently, aligning them with market demand and client needs across Nasdaq’s US options exchanges. This innovative approach has reduced the manual labor needed to identify new listings, involving the analysis of millions of symbols daily.

In conclusion, Nasdaq’s recent advancements, including the AI-powered Dynamic M-ELO and the Strike Price Optimization Program, signal a transformative shift in the world of stock exchanges. These initiatives aim to make exchanges more efficient, responsive, and aligned with the evolving financial landscape

By FCCT Editorial Team

Disclaimer: The views expressed in this article are independent views solely of the author(s) expressed in their private capacity.

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