While the NYSE operates in an all-electronic manner temporarily, some Opening and Closing Auctions are executed via an Exchange-run process. These Exchange-facilitated auctions (EFAs) include price collars that limit the auction price to a specified distance from the final reference price.
As our previous post noted, DMMs can electronically open and close securities, and have facilitated well over 90% of the opening and closing auctions this week. When a DMM facilitates an auction, either manually via a human DMM on the Trading Floor or electronically via their algorithms, they are required to include all marketable interest in the auction execution. Auctions that cannot be facilitated electronically by DMM algorithms are currently facilitated by the NYSE’s EFA.
Since these EFAs will only execute up to the collar price, there is a potential that marketable orders (e.g. Market, MOO, MOC, or better-priced limit orders) will not be executed if the EFA is limited by the collar.1 In practice, we find that:
Over the first four days of the temporary Trading Floor closure, NYSE securities have had 21,500 Opening and Closing Auctions, over 90% of which have been executed by the DMM. Market order shares have remained unexecuted in fewer than 1% of total auctions.
|Total Auctions||Total Auction Volume||Auctions w/ Cancelled Market Orders||Total Market Order Shares Cancelled|
Collared auctions have occurred mostly in thinly-traded securities, where a small amount of trading interest can push the auction execution price a material distance from the auction reference price. The below charts compare the average difference between the final auction reference price to the actual auction price, plotted against average daily volume and sized by dollar value traded. These chart show:
MOC and LOC orders can be entered without restriction up to 3:50 p.m. ET. Firms can submit offsetting MOCs/LOCs up to 4:00 p.m. if a Regulatory Imbalance of 50,000 shares or more is published at 3:50 p.m. MOC/LOC orders submitted after 3:50 that do not offset a Regulatory Imbalance will be rejected by the exchange.
NYSE also offers an electronic Closing Imbalance Offset (IO) order type that can be used to offset imbalances, does not influence price formation, but is not guaranteed to participate. Closing IO orders can be used for any size imbalance and are accepted on both sides of the market up to 4:00 p.m. Similar to MOC and LOC Orders, they can be cancelled between 3:50 and 3:58 only for a legitimate error, and cannot be cancelled after 3:58 p.m.
Following the record-setting 40.1 million average daily volume (ADV) in the 1st quarter of this year, Q2 2021 options volume was the 2nd highest of all-time with 37.6 million contracts traded per day. Robust volume was driven in part by market anticipation of a potential earlier rise in interest rates and Fed tapering, as well as increased volume in options on new issues and continued activity in retail-focused stocks.
After-hours trading has been a larger piece of the total trading volume since the onset of the pandemic, with retail presence growing stronger and earnings announcements becoming less of a factor. In this post, we examine the impact of these shifting dynamics on after-hours price discovery and order behavior.
The surge in market volatility and trading volumes since the onset of the pandemic in March 2020 has impacted numerous aspects of equity market trading. One less-studied area has been after-hours trading. After-hours has also seen changes in order flow trends and influences, and here we examine trends and shifts occurring in these sessions.