SIX Swiss Exchange is launching new Auction Volume Discovery (AVD) functionality featuring a hidden order type that enables market participants to execute larger orders without disclosing the size of the trade, reducing market impact and enhancing liquidity as a result.

As auction phases account for an increasing portion of trading in Swiss blue chips – which includes Nestlé, Europe’s most traded share – SIX Swiss Exchange has developed this solution to improve trading on its market. AVD addresses the issue that certain asset managers cap their participation in the auction due to fears of adverse market impact. The new hidden order type will support the discrete submission of liquidity into the auction that was previously withheld or placed on alternative venues. AVD brings that hidden liquidity into the order book of SIX Swiss Exchange, where it is flagged if executed. 

AVD automatically checks with other members trading on the exchange whether there is a counterpart on the other side of the market that wants to buy or sell the shares. When there is a match at the closing price, the trade will be automatically executed without impacting the closing price. If the orders do not match, there is no trade. However, crucially, the orders are not disclosed to the wider market. AVD provides an additional option to manage market impact, as more and more asset managers continue to seek access to liquidity without moving the price against them. 

The launch of AVD follows a new record was set by the Block Solution for SwissAtMid last month, with over CHF 560 million executed in conditional orders, meaning turnover almost doubled from the previous high.

Simon Mason, head of equity products for UK and Ireland at SIX: “Ultimately, the ability for asset managers to maximise the sourcing of liquidity at a desired price level is important. However, displaying your full trading intention in highly focused liquidity events, such as auctions, presents a risk of information leakage. When the wider market knows a large position is in the process of being offloaded, price is invariably impacted. Our AVD solution means asset managers can maximise the opportunity to unwind large trading positions, in a single trading session, without the price moving away from them.”

Source: SIX