Cboe Seeks SEC Approval to Launch US Periodic Auctions
- These will reinstate price-based market competition, rather than speed.
Cboe Global Market is planning to implement new measures in one of its four stock exchanges in the United States to curb the advantages of the high-frequency traders.
In an outline published on Cboe’s website, the company proposing to launch periodic auctions lasting one-tenth of a second. These auctions will aggregate buying and selling positions from the order book into batches and will execute them at a discrete interval.
Buyers and sellers can only make stock transactions during this period.
In the existing system, when an order can be placed at any time during the market opening hours, high-frequency traders get a massive advantage. These computerized traders execute orders in millionths of a second and book profit marginally when the stock ups by a penny or sell just before the price drops.
If implemented, these fast traders will lose their Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term over the other market participants. These measures will ensure a competition based on price, rather than speed.
Will it receive the regulatory nod?
Cboe has already filed for the approval with the Securities and Exchange Commission (SEC), and if approved, will implement the measures at BYX, one of its smaller US exchanges. Though the exchange only handles 2 percent of the total US stock trading volume, it would be the first step to implement such measures on major exchanges.
The exchanges in Europe already implemented similar measures in 2018, capping dark-pool trading and boosting the periodic auctions. Support for such mechanisms was also voiced by major asset managers, including BlackRock and Janus Henderson Group.
The US stock market operator also detailed that the newly proposed mechanism “would assist investors in obtaining needed Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, particularly in the case of investors seeking to execute larger orders.”
Furthermore, it could also assist traders in trading low volume small-cap stocks.
Meanwhile, the Cboe is also planning to open its European derivatives unit by the first half of next year.
Cboe Global Market is planning to implement new measures in one of its four stock exchanges in the United States to curb the advantages of the high-frequency traders.
In an outline published on Cboe’s website, the company proposing to launch periodic auctions lasting one-tenth of a second. These auctions will aggregate buying and selling positions from the order book into batches and will execute them at a discrete interval.
Buyers and sellers can only make stock transactions during this period.
In the existing system, when an order can be placed at any time during the market opening hours, high-frequency traders get a massive advantage. These computerized traders execute orders in millionths of a second and book profit marginally when the stock ups by a penny or sell just before the price drops.
If implemented, these fast traders will lose their Leverage Leverage In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders In financial trading, leverage is a loan supplied by a broker, which facilitates a trader in being able to control a relatively large amount of money with a significantly lesser initial investment. Leverage therefore allows traders to make a much greater return on investment compared to trading without any leverage. Traders seek to make a profit from movements in financial markets, such as stocks and currencies.Trading without any leverage would greatly diminish the potential rewards, so traders Read this Term over the other market participants. These measures will ensure a competition based on price, rather than speed.
Will it receive the regulatory nod?
Cboe has already filed for the approval with the Securities and Exchange Commission (SEC), and if approved, will implement the measures at BYX, one of its smaller US exchanges. Though the exchange only handles 2 percent of the total US stock trading volume, it would be the first step to implement such measures on major exchanges.
The exchanges in Europe already implemented similar measures in 2018, capping dark-pool trading and boosting the periodic auctions. Support for such mechanisms was also voiced by major asset managers, including BlackRock and Janus Henderson Group.
The US stock market operator also detailed that the newly proposed mechanism “would assist investors in obtaining needed Liquidity Liquidity The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent The term liquidity refers to the process, speed, and ease of which a given asset or security can be converted into cash. Notably, liquidity surmises a retention in market price, with the most liquid assets representing cash.The most liquid asset of all is cash itself.· In economics, liquidity is defined by how efficiently and quickly an asset can be converted into usable cash without materially affecting its market price. · Nothing is more liquid than cash, while other assets represent Read this Term, particularly in the case of investors seeking to execute larger orders.”
Furthermore, it could also assist traders in trading low volume small-cap stocks.
Meanwhile, the Cboe is also planning to open its European derivatives unit by the first half of next year.