Bats, a CBOE Holdings Inc. company, and an operator of stock exchanges in the United States, announced today that it is proposing to adopt a new, competitively priced alternative to the primary market closing auctions that take place at the end of the U.S. equities trading day, subject to regulatory approval.
The creation of Bats Market Close (BMC), an end-of-day match process for non-Bats listed securities, follows increasing demand from a range of industry participants frustrated by rising closing auction trading fees on other exchanges. In the past five years, closing auction fees have increased anywhere between 16% and 60% at NYSE and Nasdaq respectively. In the same timeframe, volume executed in those auctions has increased over 70%, from 200 million shares per day in 2012 to almost 350 million shares in 2016. As a result, a growing portion of trading has become increasingly expensive for market participants.
BMC is designed to challenge this dynamic. Under the current proposal, participants can elect to route Market-On-Close (MOC) orders to BMC on Bats’ BZX Exchange, where they are pre-matched with other MOC orders at 3.35 p.m. ET. Pre- matched trades are then executed when the primary exchange closing price is published. As a result, participants obtain a closing price for a fraction of the cost. Further, the timing of the BMC match allows any MOC orders that go unmatched to be sent to the primary exchange closing auctions.
A variety of brokers already provide Market-On-Close prices for investors. Subject to regulatory approval, BMC will be the first such functionality to be offered by an equity venue operator, incorporating unique on-exchange features including anonymity and trade transparency.
Bryan Harkins, Head of U.S. Equities and Global FX said: “Over the past few years, we have seen the primary market auction operators steadily increasing auction fees while, conversely, intraday exchange trading fees have steadily dropped as a result of competition. This has made a critical part of the trading day markedly more expensive. As a result, market participants have asked us to provide competitive pressure of the sort that we apply during the trading day. The Bats Market Close is our response that provides an alternative that reduces costs for market orders but preserves a single, consolidated closing price, all through an exchange platform.”
Most importantly, the BMC does not create a rival, price-forming auction for non-listed securities. This is because the BMC avoids removing Limit-On-Close orders from forming price in the primary market closing auctions, only matching market- on-close orders. This reduces participant costs without distorting auction price formation.