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Cboe US Periodic Auction To Combat Off-Exchange Volumes

August 6, 2020

Cboe Global Markets is aiming to launch periodic auctions in the US, after success in Europe, as off-exchange trading volume has been increasing.

Adam Inzirillo, head of US equities at Cboe Global Markets, told Markets Media: “In the last couple of years, as off-exchange trading volumes have grown, periodic auctions give the public an on-exchange alternative for executing block trades and attracting natural interest.”

Periodic auctions last for very short periods of time during the trading day and are triggered by market participants, rather than the venue, helping them find liquidity quickly with low market impact, while prioritizing size and price.

Justin Schack, partner and managing director at Rosenblatt Securities, noted the increasing volumes of off-exchange trading:

Greenwich Associates said in a report that the Covid-19 pandemic has triggered a major shift in US equity trading volumes away from exchanges.

The consultancy said off-exchange trading reported to the Trade Reporting Facility remained relatively stable last year between 35% and 40%.

“In all of 2019, there were 16 days with TRF volume above 40%,” added Greenwich. “In contrast, as of early June 2020, the reporting to the TRF had already exceeded 40% of market volume 58 times.”

Schack said in an email that Cboe’s regulatory filing for periodic auctions cites the SEC’s recent statement encouraging exchanges to propose innovative methods for improving outcomes in thinly traded securities.

“Some may prefer auctions to continuous trading for these less liquid shares, as a way to aggregate latent interest traders are reluctant to display,” Schack added. “Cboe’s European auction, though it has important differences from the US proposal, registers higher market share for smaller-cap issues than blue chips.”

Cboe said its European periodic auction accounted for more than 70% of all periodic auction activity, or approximately 2.4% of notional value traded on European equities exchanges.

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