[ by Howard Haykin] Traders on the Nasdaq Stock Market, and on each of its affiliated Nasdaq OMX Exchanges in the U.S. "won" a brief reprieve from the respective soon-to-be-effective Excessive Messaging Policy.  Originally scheduled to go effective on Friday, 6/1/12, the effective date was moved back one month to Friday, 7/1/12 - pending SEC review. UPDATE 5/21/12: NASDAQ, BX and PSX are modifying certain thresholds, standards, and fees that were previously announced. What and Why are Nasdaq, BX, and PSX instituting an Excessive Messaging Policy? "Robust liquidity provision, including depth of liquidity, is vital to modern equity markets and frequently updated displayed quotes generally promote efficient price discovery and provide essential liquidity. However, excessive quoting at prices away [C-I's italics] from the National Best Bid and Offer (NBBO) can result in a significant market data burden for participants and does little to improve the quality of the lit marketplace. Thus, Nasdaq, BX and PSX have proposed an Excessive Messaging Policy ti encourage active quoting near the NBBO and discourage excessive order activity away from the inside.  n this way, the exchanges seek to reduce non-marketable quote activity while protecting legitimate market making activity from incremental complexity and cost. What is the Excessive Messaging Policy? On 5/21/12, NASDAQ, BX and PSX will introduce a policy intended to reduce excessive submission of non-marketable displayed orders to the exchange. These guidelines will go into effect on 7/2/12.

• MPIDs that exceed a "Weighted Order-to-Trade Ratio" of 100:1 will pay a fee on the orders that cause them to exceed the threshold.
• Order and trade activity by Registered MM's in their registered securities will be excluded from the ratio calculation.

The Weighted Order-to-Trade Ratio. This ratio is a measure of how often an MPID sends displayed, non-marketable liquidity-providing orders to the exchange that fail to execute.  It's similar to the "Orders to Orders Executed" ratio used by Nasdaq's ISP program, but also applies a Weighting Factor to each order based on its proximity to the NBBO at the time of entry. On 5/21/12, new proposed weighting factors were introduced, to go into effect on 7/2/12.  See publication for details. Order types to be included in Weighted Order-to-Trade Ratio calculation. Only displayed, liquidity-providing orders received during regular market hours will be included in the Weighted Order-to-Trade Ratio calculation.  Non-displayed orders, IOC orders and Auction orders will not be included in the calculation.  Orders sent by Registered Market Makers in their registered securities will not be included in the calculation.  On 5/21/12, the following update was proposed: MPIDs sending less than 100,000 Weighted orders daily will not incur penalties.  Previously, MPIDs submitting fewer than 1,000,000 unweighted orders were not subject to the penalty. Penalty for sending excessive messages. On 5/21/12, the following update was proposed: MPIDs that exceed the Weighted Order-to-Trade Ratio threshold of 1,000:1 will pay a $0.01 per order penalty for their "Excessive Orders".  MPIDs that exceed the Weighted Order-to-Trade Ratio threshold of 100:1 but less than 1,000:1 will pay a $0.005 per order penalty for their "Excessive Orders".  Excessive Orders are orders that cause an MPID’s ratio to exceed 100:1.  etc. For further details, go to:   [Nasdaq ETA 12-13, 5/22/12].