Nasdaq Receives SEC Approval For AI-Based Trade Orders

The SEC has approved the Nasdaq’s request to operate the first exchange AI-driven order type. Called the dynamic midpoint extended life order (M-ELO), the new system expands on the M-ELO automated order type by making it “dynamic,” meaning it will use artificial intelligence to update and, essentially, recalibrate itself in real-time. Order types are a set of software instructions that execute specific trade pairs at exact market pricing thresholds. This form of automation has been around for a while, but the new AI-driven order type is the first of its kind to use real-time reinforcement learning AI to execute orders.

This should have the follow-on effect of substantially speeding up orders placed with the system. In a blog post accompanying the approval announcement, Nasdaq states that dynamic M-ELO demonstrated a “20.3% increase in fill rates and an 11.4% reduction in mark-outs” during its research and testing. According to a data sheet published by Nasdaq: “Calculated on a symbol-by-symbol basis, this new functionality analyzes 140+ data points every 30 seconds to detect market conditions and optimize the holding period prior to which a trade is eligible to execute.” By adjusting the holding periods for orders in real time, as opposed to the traditional system that simply applies static timeouts to orders, fill rates should increase without a significant increase in market impact.