Nasdaq received approval from the United States Securities and Exchange Commission on September 8 to launch the first AI-driven exchange order type.
This innovative system, known as the dynamic midpoint extended life order (M-ELO), builds upon the existing M-ELO automated order type by incorporating real-time artificial intelligence (AI) capabilities, allowing it to continuously adjust and recalibrate itself.
Order types involve sets of software instructions that execute specific trade pairs at precise market pricing thresholds.
While automation of this kind has been in use for some time, the introduction of AI-driven order types marks a groundbreaking development, employing real-time reinforcement learning AI for order execution.
This advancement is expected to significantly accelerate order processing within the system.
Nasdaq revealed in a blog post that during research and testing, dynamic M-ELO achieved a remarkable “20.3% increase in fill rates and an 11.4% reduction in mark-outs.”
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Operating on a symbol-by-symbol basis, this new functionality continuously analyzes over 140 data points every 30 seconds to detect market conditions and optimize the holding period for trade execution eligibility.
This dynamic approach, in contrast to the traditional system’s static timeouts, should enhance fill rates without causing notable market impact.
The integration of artificial intelligence technologies in the fintech sector has had a profound impact on the entire financial industry.
Large language models like ChatGPT have found applications as educational tools for both traditional stock and cryptocurrency traders.
Nasdaq’s prior ventures into combining AI with finance included incorporating predictive AI models to assist in processing the vast array of over 1.5 million options listings in the U.S. market.
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