medium · Market Microstructure lob
A trader posts a hidden (fully iceberg-concealed) limit buy at the best bid on a U.S. equity exchange that uses strict price-time priority but ranks displayed orders ahead of hidden orders at the SAME price. A second trader posts a DISPLAYED limit buy at that identical price one millisecond later. An incoming marketable sell then arrives that can fill only one of the two.
Which order executes, and what is the governing principle?
- The displayed order fills first, because at a given price level displayed liquidity is granted priority over earlier-posted hidden liquidity, so time priority is subordinated to display priority within the level
- The hidden order fills first instead, because it was posted earlier, and strict time priority always dominates display status between orders resting at the exact same price level on this exchange
- The hidden order fills first, because exchanges award non-displayed liquidity a priority bonus ahead of displayed size, compensating it for its comparative lack of guaranteed execution certainty at that price level
- The displayed order fills first because the later-arriving order is deemed to have improved upon the resting price, and price priority outranks the earlier hidden order resting at that identical level, per exchange rules
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