[ I N - D E P T H
|
C L O S I N G
good or bad, and if you use the closing
auction but don’t get what you need to
done, then it can be really problematic
because the market’s closed. It has led
to thinner volumes during continuous
trading and increased intraday volatil-
ity, which is bad news as it precipi-
tates an instable market because price
formation is unreliable.”
Alternative mechanisms
For market operators such as Cboe
and Aquis Exchange, this has been an
opportunity to help traders inter-
act with liquidity at the close more
efficiently. Cboe confirmed plans this
summer to launch Cboe Closing
Cross, or 3C, as an alternative
closing auction mechanism that
crosses orders every minute
during a 45-minute window
once continuous trading ends
at 4.30pm in the UK.
3C targets the surplus
and non-price forming
flow that can’t access
other alternative at
close mechanisms. It
does not import or
reference the offi-
cial closing price,
something Cboe’s
Howson says was
a strategic move
by the exchange,
as the regulatory
debate around
A U C T I O N S ]
current market data pricing con-
tinues to loom over the European
equities landscape.
“We didn’t want to be beholden
or vulnerable to the market data
license costs of the national listing
exchange,” Howson explains.
“Some of the existing models out
there rely on importing that price
from the listing market, and if
you have a model that relies on
that then there are risks around
data, auction extensions and other
issues.
“We are not aiming to attract
or undermine the price forming
process done in the listing market
closing auction as everyone accepts
that is an important benchmark
pricing event. With 3C we are real-
ly looking to attract the non-price
forming flow. The beauty of 3C is
that is allows a ‘one-stop-shop’ for
market participants to trade at the
price they wish to trade across 18
markets. There’s flexibility and
freedom with the at limit order
and there is no lock-in, which is
interesting to market participants
because we understand that things
change and people change their
minds.”
As Howson mentions, 3C oper-
ates an ‘at limit’ order type, mean-
ing the order will only be executed
at the price specified or not at all.
The order type gives traders the
ability to choose what they think
is the right closing price, and trade
it with certainty. Although as Her-
mes’ Nicholls alludes, the ‘at limit’
order could create risk that some
traders will miss out completely if
they don’t get the limit price.
“You have to be prepared to
accept the uncrossing price in
the closing auction by using an ‘at
market’ order, because with an ‘at
limit’ order you risk missing out
entirely,” he says. “There is also a
risk that the closing auction price
is not an accurate reflection of
Issue 62 // TheTradeNews.com // 53