BATS Chi-X Europe is to introduce an auction system to encourage block trading on its exchange.
A new order book, set to launch next month, will provide auction functionality throughout the trading day.
BATS said it wants to prioritise market participants posting larger orders through successive auction events, with trades allocated in order of price and size. Over 4,000 stocks will be included in the auction when it launches on 19 October, with auctions frequency determined by each stock’s liquidity characteristics.
Each auction event will have a random end and matches will only take place within the European Best Bid and Offer price range.
Mark Hemsley, CEO of BATS Chi-X Europe, said: “While the bulk of our efforts to date have prioritised improving the efficiency of the marketplace for those wishing to trade continuously, the Periodic Auctions Book responds to the specific needs of participants to trade regularly in size.
“It recognises the usefulness of auction functionality to those investors, and reimagines the orthodox market model accordingly to provide an entirely new venue that’s available throughout the trading day. In that respect, its launch represents a new frontier in European order book trading.”
The move is the latest attempt by an exchange to improve its ability to help market participants execute larger trades. Caps on dark pool volume, set to be introduced in 2017 as part of MiFID II, mean the buy-side will have to seek out new ways to trade in size.
The existing continuous trading books will continue to operate as normal. BATS said it felt it was counterintuitive to pause continuous trading while auctions take place, hence setting up a separate order book.