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PERIODIC AUCTIONS 2.0 :
A growing source of price improvement opportunities
How have periodic auctions developed in Europe ? Cboe launched Europe ’ s first periodic auctions mechanism in 2015 , ahead of the 2018 Mifid II regulations . There was industry demand for an alternative , lowimpact execution mechanism given the restrictions Mifid II was placing on other trading channels . They now represent 6.5 % of continuous trading , compared to 5.3 % a year ago , with Cboe Europe holding a 78 % market share in the category ( as of August ). Periodic auctions are functionally similar to the opening / closing auctions operated by European listings venues in terms of the price formation process and levels of transparency . But , by running auctions multiple times a second , they represent a near-continuous market model operating in parallel to the other trulycontinuous market mechanisms .
What benefits do periodic auctions offer investors ? Periodic auctions are popular because they help investors
As operator of Europe ’ s largest periodic auction – and pioneer of the category – Cboe is continuing its innovative approach to deliver the execution quality benefits of the mechanism more widely , says Natan Tiefenbrun , president , Cboe Europe .
source price / size improvement by prioritising order size over speed at the order allocation phase , being price-forming rather than price-referencing , and by introducing randomness in trade timing . Cboe ’ s periodic auctions can last anywhere up to 100ms , which is around 4,000 times slower than lit books . With pretrade transparency only around equilibrium price and volume , the mechanism provides market participants with the necessary information to understand the potential liquidity available , without exposing imbalance information . These features result in periodic auction executions demonstrating a much more stable and symmetrical post-trade price-path than is common in continuous trading mechanisms ( see Chart 1 ).
Market data from periodic auctions communicates the availability of liquidity and the opportunity to trade during each call phase – often at prices within the European best bid and offer ( EBBO ) spread and often in larger sizes than other venues . Although median trade sizes are similar to those observed in lit markets , there are significant opportunities to trade in larger sizes . Chart 2 shows that during H1 2023 , 37 %
30 // TheTRADE // Q3 2023