In a research study by Greenwich Associates and Nasdaq, findings show that the exchange-operated opening and closing auctions or “crosses” are becoming an increasingly important part of the trading day, as passive investing continues to grow and traders look for opportunities to execute larger blocks of stock. A beneficial feature of market structure, these call auctions concentrate liquidity at a point in time, leading to effective price discovery.
Just as each exchange auction operates in a slightly different manner, the type of information provided by auction feeds also varies from exchange to exchange. Traders should ensure that they understand these differences and tailor their trading strategies accordingly. Case in point, Greenwich Associates data shows that the use of guaranteed “market-on–open” or “market-on-close” strategies has increased from 5% of portfolio trading flow in 2015 to 14% in 2016.
In a February 2nd interview with MarketWatch, Oliver Albers, vice president of Nasdaq's global information services division noted, "Investors who aren’t using passive-trading strategies tend to also benefit from these open-and-closing auctions because a trader can execute large trades quickly and at a better price due to the increased liquidity that tends to occur that those times. In general, it's useful as a price discovery event at the beginning of the day."
To develop the study, Greenwich Associates and Nasdaq interviewed 30 buy-side traders, and included metrics from 77 interviews conducted with portfolio accounts.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.