Cboe gets green light from SEC to launch US equities periodic auctions  

The US equities periodic auctions are expected to launch at Cboe during the third quarter of this year.

Cboe Global Markets has received approval from the US Securities and Exchange Commission (SEC) to introduce periodic auctions onto its Cboe BYX Equities Exchange.

The exchange operator confirmed its plans to launch a periodic auction system in the US in July last year, after being the first to launch the alternative trading venue in Europe in 2015. 

The periodic auctions allow market participants to access frequent, price-forming auctions throughout the trading day, helping them find liquidity with a reduced market impact. 

Cboe said the launch was in response to increasing block-sized liquidity taking place off-exchange using conditional orders, adding that the auctions would provide traders with an on-exchange alternative to trade in size. 

“Outside of the opening and closing auctions each day, investors generally have fewer options to interact with natural liquidity, particularly when seeking to execute larger orders with minimum market impact,” said Adam Inzirillo, senior vice president and head of North American equities at Cboe Global Markets.

“We believe our US periodic auctions mechanism will provide a unique, on-exchange solution to satisfy investor demand for access to immediate liquidity and size, as well as deliver additional price improvement and increased execution opportunities to benefit all market participants.”

Cboe was the first exchange to introduce the periodic auction in Europe prior to the implementation of MiFID II in 2018. Under the regulation, restrictions on dark trading and the banning of broker crossing networks (BCNs), provided an alternative venue for traders to navigate liquidity and execute transactions in compliance with MiFID II.

The exchange claims that the periodic auction is now the largest in Europe, accounting for 80% of all periodic auction activity, with an average daily traded notional value of €1 billion last year. 

“The creation of US periodic auctions demonstrates our unique capabilities as a truly global exchange operator to leverage and deploy our vast technology and product innovation expertise across asset classes and regions to serve our global base of customers,” said David Howson, president for Europe and Asia Pacific at Cboe Global Markets.

Periodic auctions were subject to scrutiny from European regulators when they were first introduced. As their volumes surged, regulators expressed concern that they offered limited transparency and were used by market participants to sidestep MiFID II’s double volume cap designed to limit dark trading.

However, EU markets regulators put on the brakes before enforcing major changes to the auction systems after many respondents, particularly on the buy-side, became outspoken on the proven benefits that periodic auctions can provide.