Nasdaq Inc. (NDAQ.O) said on Friday that it received SEC clearance to introduce the first exchange AI-driven order type, which, if successful, may significantly boost the efficiency of a stock market that moves at a breakneck speed.
The exchange claims that the dynamic midpoint extended life order (M-ELO) would improve trading results for investors by increasing the frequency with which orders are matched and decreasing the market effect.
The SEC said they had nothing to add.
Traders communicate with exchanges on how to process their transactions using a variety of order types. This development coincides with a rising awareness of the potential of AI in the financial sector.
Launched for the first time in 2018, M-ELO is a strategic order type that facilitates trading between investors with 10-millisecond time horizons.
To increase execution quality and fill rate, the adaptive version will employ an AI technology called reinforcement learning to monitor market activity and make real-time modifications to that holding period.
According to Nasdaq’s findings, AI-powered solutions may boost the capital markets by increasing fill rates by 20.3% and decreasing mark-outs by 11.4% when using the real-time AI order type.
Owen Lau, senior analyst at Oppenheimer & Co., stated that if this new order type is deployed well, it would enhance the order fill rate and decrease holding time, allowing Nasdaq to gain market share from rival exchange operators.