Nasdaq's M-ELO Tool Represents Stock Market's AI Adoption, But With SEC Approval

The U.S. Securities and Exchange Commission (SEC) gave a nod of approval to Nasdaq Inc’s NDAQ newest artificial intelligence (AI)-powered trading tool.

The company's “Midpoint Extended Life Order” (M-ELO) is being touted as the first AI order type to gain the endorsement.

Here’s what you need to know, and how it is going to affect you.

What Happened: Nasdaq’s M-ELO leverages AI to fine-tune the trading process. The M-ELO system can adjust to real-time current market conditions by using advanced algorithms that factor in over 140 data points every 30 seconds.

The adjustment — as opposed to the more traditional static approach — aims to bring traders better results, particularly in areas like fill rates (completing trades) and market impact (how much a stock price moves due to a trade).

Nasdaq’s research (both internal and market participant feedback) backs its move towards AI integration.

Traditional M-ELO was a more one-size-fits-all method, but by taking a real-time, dynamic approach, Nasdaq observed a 20.3% increase in trade completions and an 11.4% drop in unsuccessful trades.

Wait, What? For the individual investor, this can seem a tad technical — let's simplify it.

Imagine you're at an auction, trying to buy a rare comic book or Pokemon card. Instead of everyone shouting their prices and instantly making purchases, there's a short pause where an AI considers the room's mood, who's likely to bid next, and how past bids went. Using that data, it then gives everyone a chance to make the best decision, which aims to ensure that buyers and sellers match up more efficiently.

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In Trading Terms: M-ELO is like that pause at the auction. Instead of instant trades, there's a short waiting period, but the waiting period isn't fixed. It can change based on what's happening in the market, ensuring optimal outcomes.

For investors, this means better chances of trades going through (higher fill rates) and less chance of a stock price dramatically changing due to trades (reduced market impact).

For the everyday trader, it's like having a smart assistant by your side — one that knows the market well and helps you make informed decisions.

In essence, the tech aims to provide investors with better opportunities. The introduction of AI means the trading system can learn and adapt, constantly refining its processes based on real-time information.

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