Bats develops market close process to challenge costly closing auctions

New market close process developed in response to rising costs of using closing auctions.

Bats has developed a new end-of-day matching process for non-Bats listed securities as an alternative to closing auctions.

Bats Market Close (BMC) was created following increasing demand from industry participants frustrated by rising closing auction fees on other exchanges.

Closing auction fees have increased between 16% and 60% at NYSE and Nasdaq respectively, as volume executed in those auctions has increased over 70% between 2012 and 2016.

Bats said the BMC process was developed to ‘challenge this dynamic’.

It allows traders to route market-on-close orders to BMC on Bats’ BZX Exchange where they are pre-matched with other market-on-close orders and then executed when the closing price is published.

This method allows market participants to trade at the closing price for a ‘fraction of the cost’.

Bryan Harkins, head of US equities and global FX at Bats, explained over the past few years, market auction operators have steadily increased auction fees while intra-day exchange fees have declined.

“This has made a critical part of the trading day markedly more expensive. As a result, market participants have asked us to provide competitive pressure of the sort that we apply during the trading day,” he said.

Bats added BMC will be the first such process offered by an equity exchange operator that incorporates features like anonymity and trade transparency.