SEC deals blow to NYSE and Nasdaq with ruling on 4pm closing trades

Discussion in 'Wall St. News' started by guru, Jan 22, 2020.

  1. guru

    guru

    https://www.fnlondon.com/articles/s...aq-with-ruling-on-4pm-closing-trades-20200122
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    By Alexander Osipovich
    January 22, 2020 7:26 am GMT
    Regulators have dealt a blow to the New York Stock Exchange and Nasdaq by loosening their grip on the
    4pm closing auctions that determine end-of-day prices for thousands of stocks.

    The Securities and Exchange Commission said Tuesday that it would allow a rival exchange group, Cboe Global Markets to implement a mechanism that lets traders bypass paying fees to NYSE and Nasdaq when they seek to buy or sell shares at daily closing prices.

    The move could hurt the revenue of NYSE, owned by Intercontinental Exchange, and Nasdaq at a time closing auctions are playing an increasingly important role in the US stock market.

    In the run-up to 4pm each day, traders submit orders to buy or sell stocks in the closing auctions.

    The resulting price, which NYSE and Nasdaq determine by matching buyers and sellers in the electronic auctions, determines the official closing price of stocks published in the financial press and used as a benchmark by index funds.

    Last year, 7.2% of trading volume in US stocks took place in exchanges’ closing auctions, up from about 5% in 2016, according to Cboe.

    A major factor behind the growing importance of closing auctions has been the rising popularity of index-based investing strategies, which passively track the value of a basket of stocks in an index such as the S&P 500.

    The managers of index funds often execute trades at or near 4 p.m. to track their indexes as closely as possible.

    Cboe’s proposal, called Cboe Market Close, would tinker with that process by allowing traders to submit buy or sell orders to Cboe until a 3:35pm cutoff.

    After NYSE and Nasdaq publish their closing prices at 4pm, Cboe would match buyers and sellers using the prices released by the two big exchange operators.

    The mechanism would only apply to market orders, in which traders passively accept whatever closing price is released by NYSE or Nasdaq. Limit orders, in which traders seek to get a certain price or better — and which are more important in determining the auction’s final price — would still be sent to NYSE and Nasdaq.

    NYSE and Nasdaq have opposed Cboe’s proposal, arguing that it amounted to free-riding off an auction process they had heavily invested in, and that it would make closing auctions susceptible to manipulation.

    Cboe rejected those accusations. On Tuesday, the SEC sided with Cboe, saying the plan would help boost competition in the exchange business.

    “The record demonstrates that Cboe Market Close should not disrupt the closing auction price discovery process nor should it materially increase the risk of manipulation of official closing prices,” the SEC wrote in an order posted on its website.

    Chicago-based Cboe, the country’s number three stock-exchange operator by market share, had touted its plan as a way to allow traders to save on fees, after both NYSE and Nasdaq raised their fees for closing-auction trades in recent years.

    Cboe initially unveiled the proposal in May 2017. The process of winning SEC approval for the proposal dragged on for several years due to vocal opposition from NYSE and Nasdaq.

    More than 30 NYSE- and Nasdaq-listed companies, including Procter & Gamble and FedEx also attacked the proposal in letters to the SEC.

    Staffers at the SEC initially approved Cboe’s plan in January 2018.

    But NYSE and Nasdaq appealed that decision to the SEC’s commissioners, putting the proposal into limbo until this week.

    Nasdaq blasted the SEC’s decision on Tuesday.

    “If enacted, Nasdaq feels strongly it will reduce resiliency, negatively impact price discovery and foster unfair advantages to some traders over others,” a Nasdaq spokesman said. “The end result is a more complicated market without any related benefit.”

    “Investors and issuers derive real benefit from the centralized liquidity of the NYSE closing auction,” a NYSE spokesman said. He added that NYSE cut fees for closing-auction trades in 2018.

    Bryan Harkins, head of markets at Cboe, said the new closing-auction mechanism would “provide investors with greater accessibility and cost-efficiency to one of the most critical liquidity events of the trading day.”
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    murray t turtle likes this.
  2. SumZero

    SumZero

    Didn't understand is this can have any impact on MOC orders.
     
  3. Does not seem to include short sales.
     
  4. traider

    traider

    Wow this is big, super hft at closing
     
  5. d08

    d08

    I'd like to put this into practice. Currently MOC pricing is ridiculous.
     
  6. %%
    Sounds like a good thing, more players;
    I would not call that ''a blow to NYSE, NasdaQ'' It could shaVe profits a bit , for them.LOL:caution::caution:
     
    guru likes this.
  7. qlai

    qlai

    So in case of cboe has imbalance, unfilled orders are cancelled back? So I send MOC at 15:35, can't control price nor fills. No wander SEC approved it.
     
    murray t turtle likes this.
  8. %%
    Should be filled, qlai- if they want Any MOC business@ all. Me, I don't like much last minute stuff /drama.I did a sell one minute till close/2:59 CST, in JAN..........................................
     
  9. d08

    d08

    Why would MOC go unfilled? I mean if you trade something without any liquidity then yes but that's extremely rare. You can't control price nor fills with the current NYSE/NASDAQ MOCs, what changed?
     
    murray t turtle likes this.
  10. qlai

    qlai

    Because, unlike the auctioning exchange, CBOE may not modify the closing price. So if CBOE received 1m buy and 2m sell shares, they can cross 1m at closing price. What will they do with the other 1m sell shares?
     
    #10     Jan 22, 2020