BATS Chi-X Europe launches auctions order book
European stock exchange BATS Chi-X Europe has created a new order book for auctions, which it says will help traders to make larger trades. The new book is set to go live on 19 October, and represents an effort to satisfy long-term traders interested in larger order sizes.
BATS says it plans to counter the declining order sizes that have affected equities markets over the last decade by prioritising those participants willing to post larger orders. It will do this by creating successive auction events throughout the course of the trading day on the new Periodic Auctions Book, allocating trades in order of price and size. About 4,000 European stocks will be available to trade, with the frequency of auction phases determined by the liquidity characteristics of an individual stock.
Every auction event will have a random end, and matches will only be allowed within a European Best Bid and Offer price range. BATS says this will ensure orderly markets and provide certainty around the execution price range. Investors should receive matches at the prevailing best price available across the pan-European equities market. The exchange’s existing order books – CXE and BXE – will not interact with, or be interrupted by, the the Periodic Auctions Book.
“While the bulk of our efforts to date have prioritised improving the efficiency of the marketplace for those wishing to trade continuously, the Periodic Auctions Book responds to the specific needs of participants to trade regularly in size,” said Mark Hemsley, chief executive of BATS Chi-X Europe. “It recognises the usefulness of auction functionality to those investors, and reimagines the orthodox market model accordingly to provide an entirely new venue that’s available throughout the trading day. In that respect, its launch represents a new frontier in European order book trading.”
The Periodic Auctions Book will follow the same hours as BATS existing order books CXE and BXE, opening at 8 a.m. and closing at 4.30 p.m. The clearing and settlement of auction trades will follow participants’ existing arrangements.
“We made a very purposeful decision to split our auctions capacity from our continuous trading books,” said David Howson, COO of BATS Chi-X Europe. “It seems entirely counterintuitive to us to interrupt the continuous trading with a scheduled auction. With the launch of the Periodic Auctions Book, functionality that prioritises size over speed will be available to use if the market requires it. Through the EBBO price collar, trades will be protected against disorderly markets, while the price formation process and continuous trading day will remain intact.”