On Demand Auctions Gathering Steam at Chicago Stock Exchange


Trading activity at the Chicago Stock Exchange isn’t just limited to the floor traders or algorithms but to “on-demand” auctions that can help reduce information leakage and promote block trading.

In a move designed to help the institutional buy-side trader find liquidity without fear of being either front-run or picked-off, Steve Givot, senior vice president for strategy and product management and his team at 440 South LaSalle Street are promoting their unique version of the “on demand” auctions or as they call it “SNAP” auctions. Given the current state of the equity market structure, Givot told Markets Media in an interview that the time for the SNAP auction has come.

“We see a blatant need for the institutional buy-side trader to find liquidity in size and that is difficult to do in this Reg NMS world,” Givot began. “The market has a strong need to avoid information leakage and the SNAP auction helps tremendously.”

It’s Just a SNAP

So how does the SNAP auction work?

Launched in June, SNAP Auctions are available during the regular trading session. CHX announces the start of a SNAP Auction in a given security, but the side, size, and limit price of the SNAP Order which leads to the auction are never disclosed.

Traders can participate in a SNAP Auction by either coding their order for the on demand SNAP Auction by symbol or by responding to a SNAP Auction. When an auction is initiated, traders have 500 milliseconds to respond.

But for slower traders or those who don’t want to miss any auctions for whatever reason, CHX offers an auction-only order type. Any market participant can submit an undetectable, dormant SNAP auction only order long before a SNAP Auction takes place. If a SNAP Auction occurs, CHX will automatically activate and algorithmically price SNAP Auction Only Orders as directed by the order sender. SNAP Auction Only Orders submitted prior to an auction have greater time priority over orders submitted in response to a SNAP Auction.

CHX offers on-demand SNAP Auctions for any security traded on CHX other than when-issued or when-distributed products.

Trading in the Light

Givot explained that unlike some other exchanges or dark pools that offer auctions, 500 milliseconds is plenty of time to respond to an auction request. But for those slower traders, the addition of the resting auction-only order book can accommodate their needs – bringing an element of fairness to the market.

“As we see it, this reduces fragmentation as the trade is being done on a lit exchange where it is open to anyone,” he said. “The results of all trades and auctions here are totally visible and we are directly regulated by the SEC.”

Givot continued that unlike some dark pools that employ an auction model, CHX lets an auction occur at any price – not just at or inside the NBBO – by utilizing inter-market sweep orders. If a trader is willing to pay up for size at CHX, then the exchange will use inter-market sweep orders to bring all the protected orders in the national market system into the auction process.

“This meeting the requirements of Rule 611 (the Order Protection Rule) so we can then price an auction through the NBBO,” Givot said.

While still in its infancy, CHX has had success in its on demand auction system. Givot shared with Markets Media that on Aug 24th, SNAP’s resting order book had bids and offers for 1122 symbols –  approximately 13 percent of all NMS stocks. In that day’s book, there were over 1200 buy and sell orders totaling 50 million shares.

“We know this is a slow trajectory launch for this type of product but we are seeing interest, as we have four or five distribution channels coding this order type,” Givot said. This includes two order and execution management vendors, he added.


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