French regulator questions Cboe’s periodic auction

Chairman of the Autorité des Marchés Financiers called out Cboe Europe’s periodic auction during a keynote address at TradeTech.

Cboe Europe’s periodic auction has been called out by the chairman of the financial regulator in France for its limited transparency during a keynote address at TradeTech in Paris this week. 

Robert Ophéle of Autorité des Marchés Financiers (AMF) expressed his concern around the recent surge in volumes and the use of periodic auctions across Europe, and how the industry considers them to be lit venues.

“Periodic auctions are considered to be lit trades, but the level of transparency is indeed very limited. There is practically no pre-trade transparency and no means of fully understanding the order book,” Ophéle said.

“The auction duration is unknown and the European Best Bid and Offer (EBBO) provides the corridor where all trades are executed, so one could be led to believe that many trades on periodic auctions are actually pre-arranged trades.”

Cboe Europe recently announced record activity the day MiFID II’s double volume caps (DVCs) were introduced in March, in which Mark Hemsley, president for Europe at the exchange, said the auction book is “well-poised” for continued growth.

Hemsley said at the time of the record that with the double-volume caps now in effect, the periodic auction book will grow as market participants seek best execution and look to trade in venues that provide minimal market impact.

In response to the keynote address, Hemsley said Cboe Europe’s periodic auctions are based on an industry standard true price formation process that includes all orders in the order book.

“Our auctions also provide pre-trade transparency, as stipulated by MiFID II regulation, publishing indicative price and size prior to an auction. It follows exactly what is required by RTS 1 for periodic auction platforms. All market participants have a clear idea of the functioning of the Cboe Europe Periodic Auctions book and in real time are able to see the price and quantity that is predicted to execute in the auction.”

Earlier this week at TradeTech a panel of periodic auction operators, including Cboe’s Hemsley, downplayed the amount of activity that is pre-arranged or broker preferenced, claiming volumes considered to be pre-matched are in fact very low.

“Cboe took great care and time to go through these constructs to ensure we did not create just another broker-crossing network (BCN),” Hemsley told delegates. Around 30% of activity in the periodic auctions book at Cboe represents broker preferenced allocations, and the exchange said this demonstrates the significant level of multi-lateral matching taking place in this price-forming book.

Similarly, the London Stock Exchange Group’s Tom Stenhouse, head of product for equities, told delegates that around 25% of the exchange’s periodic nation volumes are considered to be self-matched, with 10% of orders entering at auction time, while the remaining 90% of orders are resting.