A Detailed Look at Post No Preference Light Only (PNPLO)

By: twilemon

File Under: Options

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From Todd Wileomon: Welcome back to our second day of delving into new order types coming to NYSE Arca Options Aug. 24, 2009. If you missed the first post in this four part series, you can read it here: http://exchanges.nyse.com/archives/2009/08/blind.php

Helpful hint: This post is best read while listening to Debbie Boone singing,“You Lght Up My Life.”

Yesterday, we spent a few exciting minutes on the PNP Blind order. Today, we are going to spend time on PNP Light Only. The street lingo for these orders is “PNPLO”. Can you already see the progression we are taking? We are going from night to day -- or blind to light only.

PNP LO orders are limit orders that do not route. Two key points to remember: this order will never route, and it will only trade against contra interest that is “lit up” or displayed, which gives you greater control over how it will interact on Arca, increasing your likelihood that this order will not inadvertently take liquidity, which increases your potential to make more trades resulting in a posting credit. We pay you. Cool, yes?

The only time a PNP LO order will be charged a liquidity-removing fee is if the order trades upon receipt against displayed interest on Arca. This will be the only time you will not be eligible for a posting credit. Incoming marketable PNPLO orders will trade with any displayed interest on the NYSE Arca consolidated order book and post any remaining balance if possible to the OX book. If after exhausting NYSE Arca volume another exchange is also at the NBBO, the remaining balance will cancel back to the order-sending firm. This way you can be ensured that the order does not lock or cross a market and is not routed away from NYSE Arca Options.

Also, once PNPLO orders are posted to the book they process like standard limit orders. Non-marketable orders will post to the book and stand their ground against updates to away markets' BBO (Best Bid or Offer) (i.e. will not route or cancel) and follow standard order processing.

Like the generic PNP order type, if NYSE Arca is not at the NBBO (National Best Bid or Offer) upon receipt of a PNPLO order, the order cancels back to the firm.

Here is the coolest part of PNPLO order processing: they also cancel back if the order is marketable against any interest that is not disseminated to OPRA (Options Price Reporting Authority). This includes resting PNP Blind orders (while in the blind state) and the hidden portion of reserve orders. This way you will be more likely to trade with interest or orders that will cost you a liquidity-removing fee when that is your intention.

Once again the time has come for our English majors to step out and get a quick cup of coffee as we go through the technical specifications.

PNP LO orders will be accepted via FIX and ArcaDirect.

Populating FIX Tag 18 with “6” will designate the order is a PNP. PNP LO orders will be identified by populating FIX Tag 9417 (Extended PNP) with “L.”

For ArcaDirect, Extended PNP will be populated with “L.” TIF (Time in Force) accepted will be IOC (Immediate or Cancel), Day and GTC (Good till Canceled.)

Let us review the rules for PNP LO orders one more time. PNP LO orders are limit orders that do not route. If NYSE Arca is not at the NBBO upon receipt of PNP LO, the order cancels back to the firm. PNP LO orders also cancel if the order is marketable against any interest that is not disseminated to OPRA, e.g. resting PNP B orders (if the PNP B is in the blind state) and the hidden part of reserve orders. Non-marketable PNP LO orders will post to book and follow standard order processing.

OK enough information, time for our sing along. We will just sing the chorus of “You Light Up My Life.” Don’t worry, no one will hear you, and I won’t tell anyone that you know the words.

If you have questions regarding this new order type or any other order types please contact your Relationship Manager at relationshipmgt@nyc.com or call the options trade desk at 877-729-7291. See you tomorrow.

Trade ‘em Up!

TW