Ephemeris of the Mind

Hide Not Slide

Time to read: 4 min read

What is Hide Not Slide?

I was placing some orders in my retail brokerage account today and while I was specifying my limit order I got curious; what other types of orders are out there?

I did some digging and came across perhaps a very interesting order type; in 2009, the then trading platform Direct Edge (now an exchange merged with BATS) quietly launched something called Hide Not Slide. For something so seemingly trivial, there was a surprising amount of controversy.

The whole idea of Hide Not Slide is to prevent orders from locking the market while maintaining their precedence in the queue of orders.

Consider this example of two orders:

  1. Orders A and B are both buy orders put in at 12PM with a price target of $100.01 (you're trying to buy some shares at a price of $100.01 each); A is just a regular limit order while B is a Hide Not Slide order.

  2. The national best bid and ask offers are $99.99 and $100.01 (across all exchanges, the best price offered by someone buying is $99.99 while the best price offered by someone selling is $100.01); in theory you should be able to transact both orders A and B since someone is willing to sell at your desired price.

  3. Say the $100.01 price offered by the stock seller is on another exchange (not on a Direct Edge exchange) but for whatever reason (maybe you're trying to maximize rebates or you don't want to trade on multiple exchanges) you only want to trade on Direct Edge's exchanges; you want to put up a standing buy order at $100.01 and wait for someone to hit your bid.

  4. Unfortunately, since the passing of Reg NMS you are no longer allowed to "lock the market"; that is, you are not allowed to bid $100.01 if the national best ask price is already $100.01. You either have to lift the offer or lower your bid to $100 per share to preserve a positive bid-ask spread, complying with SEC regulation.

  5. Direct Edge "slides" back the bids so they are now both at $100 per share; both orders are now displayed as $100 per share. So far the actions of both orders are the same; the next step is where they differ.

  6. At 12:10PM, the market suddenly becomes unlocked; there are no more ask orders at $100.01 (there is no longer anyone offering to sell shares at $100.01) and the new national best price is $100.02 (the new lowest price offered by sellers across all exchanges is now $100.02). Direct Edge reverses the "slide" and now both bids are at $100.01. Order A, however, has a timestamp of 12:10PM while order B keeps the original timestamp of 12PM.

The timestamps are important because the orders are prioritized chronologically, meaning the earliest orders are executed first. This means that order B will be executed before order A. Clearly Hide Not Slide is better than "common" market orders, but what's the controversy?

Controversy

It turns out not all Direct Edge's customers were aware of the new changes and Direct Edge had to settle for $14 million with the SEC. The fact that the Slide Not Hide order type was not openly advertised to everyone was actually not particularly damaging for retail investors trading small lots or institutional players trading massive lots; it mostly affected high-frequency traders who depended on slight movements in bid-ask prices. HFT algos which were left out of the loop lost to algos which implemented Slide Not Hide. In fact, it was HFT firms who first consulted with Direct Edge to create this order type and also an HFT firm that first blew the whistle for the SEC.

While the story behind Hide Not Slide is not black and white, and some can argue it's not even that impactful on the overall market. It does, nevertheless, remain an interesting anecdote of the complex cause-and-effect relationship between different market participants.