Passive Order Rule
CODA Passive Order Rule (“POR”)
- Only applied when the auction price will be outside the NBBO.
- Designed to prevent an order that is small in size and passive in price from having an undue influence on the auction trade price (when compared to the aggregate share volume of orders on the passive side of the auction trade).
- The POR establishes a threshold to determine which, if any, passive (non-marketable) orders should be excluded from participating in a specific CODA auction.
- The POR inputs include all orders eligible to participate on the passive side of a CODA auction and the share-weighted average price of these orders collectively. The POR threshold is established and defined as twice the distance of the aforementioned share-weighted average price from the NBBO midpoint. The NBBO used for the calculation is from the NBBO snapshot taken at the end of the order entry window. Any orders priced beyond the threshold in a given auction are excluded and will not receive any allocation in that CODA auction. All orders on the passive side of a CODA auction are subject to the POR if the CODA auction is to be priced outside of the NBBO.
XYZ NBBO 10.00 – 10.05 2 X 8
Order received to Sell 2000 XYZ @ 9.95
ISO the 200 shares @ 10 – next price displayed in BBO is 9.93 bid
300 bid for $10.00
500 bid for 9.99
900 bid for 9.98
100 bid for 9.95
1800 shares valued at $17,972= $9.9844(share weighted average price)
NBBO midpoint = 10.0250
10.0250 – 9.9844=.0406
POR threshold = .0406 * 2 = .0812
Result: the 100 share bid @ 9.95 would be included in the trade as it is not more than (.0812) from the NBBO midpoint.
The 9.95 price is .075 away from the NBBO midpoint. All 1800 of the book shares would execute.
If the NBBO was 10.00 – 10.01, the 100 share bid @ 9.95 would NOT be included in the trade:
NBBO midpoint = 10.0050
10.0050 – 9.9844 = .0206
POR threshold = .0206 * 2 = .0412
Result: the 100 share bid @ 9.95 would NOT be included in the trade as the price is more than (.0412) from the NBBO midpoint.
The 9.95 price is .055 away from the NBBO midpoint. Only 1700 of the book shares would therefore execute