Ping orders

Definition

entering small orders to trade in order to ascertain the level of hidden orders and particularly to assess what is resting on a dark platform

Surveillance

Effective implementation of surveillance alerts for ping orders requires capturing the following trade data:

  • order data (including unexecuted orders)

  • trade data

Phishing is another terms used to describe similar behaviour to ping orders. Ping order and phishing could be treated as the same group of behaviours.

Industry disagreement

Some market participants expressed their doubts during the consulation period regarding “ping orders” on a dark platform. Per their argument it was not clear why ping orders are abusive per se:

"Dark MTFs will generally match orders at the mid-point of the reference BBO – usually the primary market. When the public sees trade reports from a dark MTF, the public knows the prices are determined by the reference BBO (which is a generally available price) but they will not know in advance the volumes that will trade. For example, let us consider a scenario where an aggressive seller in the reference market is hitting bids, but a larger non displayed buy order is resting in a dark-pool MTF.

For a fragmented market place to operate more efficiently, there should be a mechanism for the liquidity in the dark to be brought to the lit reference market. Otherwise, smaller orders may create unnecessary volatility in the lit and a poorer quality execution.

One such mechanism is for a liquidity provider to  inform himself about all ways to hedge himself including what is resting in dark pools so his provision of liquidity in the lit is as informed as possible. To reliably know what is in the dark pool he must send an order to trade. The public will see a price and small volume print, and they are accordingly informed that someone is seeking information as to what liquidity can be found within the dark pool.

Both the seeker of information and the market at large receive the same information at the same time. As there is no issue of price discovery by sending ping orders into a dark MTF as the market is able to calculate the price of any trade from the dark pool by reference to the primary market, it is unclear how such ping orders can create any artificial or abnormal price, or create any deceptive false or misleading price.

In the scenario above, the liquidity provider finds a resting bid and is therefore prepared to provide liquidity in the lit to the aggressive seller. In the absence of such a mechanism, the liquidity provider may fade his bids leading to unwanted and unnecessary volatility."

Regulatory source

Entering small orders to trade in order to ascertain the level of hidden orders and particularly to assess what is resting on a dark platform — usually known as ‘ping orders’

COMMISSION DELEGATED REGULATION (EU) 2016/522, Annex II, Section I, 1 (c)