Cboe To Bring Periodic Auctions to US Equities07.30.2020
- Builds on success of Cboe Europe Periodic Auctions, the largest periodic auction platform in Europe
- First auction mechanism of its kind in the U.S. aims to enhance intraday liquidity in the public equity markets
- Designed to meet customer need to trade in size, or access liquidity in thinly traded securities
Cboe Global Markets, Inc., one of the world’s largest exchange holding companies, today announced plans to introduce periodic auctions – an innovative mechanism based on a model it first launched in Europe – for the trading of U.S. equities, subject to regulatory approval. With the planned launch of U.S. periodic auctions, Cboe aims to build on the success of its European offering and bring to the U.S. equity markets a new, intraday auction mechanism that delivers beneficial execution outcomes for all market participants.
Cboe’s new periodic auction, the first of its kind in the U.S., is designed to allow market participants to access frequent, price-forming auctions throughout the course of the trading day, thereby helping enable them to find liquidity in a short time-frame with low market impact, while prioritizing size and price. The mechanism also includes a unique feature which randomizes the message identifying when an auction is available, helping to mitigate any potential adverse selection. Cboe intends to introduce periodic auctions on its Cboe BYX Equities Exchange.
Cboe Global Markets plans to bring periodic auctions to U.S. equity markets, subject to regulatory approval. The first auction mechanism of its kind in the U.S. aims to enhance intraday liquidity in the public equity markets. Learn more: https://t.co/vKLjsrRHpT. #DefiningMarkets pic.twitter.com/OD0vF7QOhZ
— Cboe (@CBOE) July 29, 2020
Cboe expects its planned U.S. offering to improve execution quality for market participants sourcing intraday liquidity in the public markets, and in particular, for those that are seeking to trade in size, including block-like executions, or to access liquidity in thinly traded securities. As market participants increasingly turn to off-exchange venues to meet their various liquidity needs without displaying their orders, Cboe’s U.S. periodic auction is designed to provide a competitive, on-exchange alternative for participants to execute order flow with reduced market impact.
Cboe’s European offering – a lit order book that independently operates frequent auctions throughout the day – was the first of its kind when it launched in 2015 and continues to be the leading European periodic auction, accounting for over 70 percent of all periodic auction activity, or approximately 2.4 percent of notional value traded on European equities exchanges, with an average daily traded notional value of more than €1 billion during the first half of 2020.
Adam Inzirillo, Head of U.S. Equities at Cboe Global Markets, said: “We believe periodic auctions could be the next market structure innovation that further enhances the U.S. equity markets, and serves to meet customer demand for additional choice in where they source liquidity, or trade with minimum market impact. Additionally, as block-sized liquidity continues to increase off-exchange with the use of conditional orders, our offering provides an attractive alternative for on-screen liquidity. Based on the sizable success of our European offering, we are excited to bring this innovation to the U.S. market.”
David Howson, President of Cboe Europe, said: “As the first European exchange operator to launch a periodic auction book, we are pleased to further extend our leadership in this arena, and build a global franchise with the addition of a U.S. periodic auction offering. The planned creation of periodic auctions for the U.S. equity markets is a great example of our strengths as a truly global enterprise, enabling us to leverage and deploy our vast technology and product innovation expertise across asset classes and regions, to better serve our customers.”
With Zoe Zhang and Richard Knight, Execution Quant Group, CLSA
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