SIX expands closing auction offering to protect buy-side when executing large orders

New functionality will help asset managers reduce their impact by giving them the option to execute orders without being visible to the wider market, SIX reveals at TradeTech Europe.

The SIX Swiss Exchange has launched a new functionality to protect asset managers from market impact when executing large orders at the close, The TRADE can exclusively reveal.

Named the Closing Auction Volume Discovery (AVD), the new functionality is built on SIX’s dark pool SwissAtMid and has a hidden order type that supports discrete submission of liquidity into the auction that was previously withheld or place on alternative venues. The new functionality brings the hidden liquidity into the SIX Swiss Exchange order book where it’s executed if it’s flagged.

This liquidity ADV automatically checks whether there is a buyer on the other side of the market that wants to buy or sell the shares. If a match is found at the closing price, the two counterparties will be automatically matched without impacting the closing price. If a match is not found then there is no trade but the order is still never disclosed to the market.

Speaking to The TRADE at TradeTech Europe 2023 Simon Mason, head of equity products for UK and Ireland at SIX, said the new dark order is designed to help buy-side users minimise their market impact while also still making the best of the Closing Auction.

“The daily portion of ADV at the Close is growing and we’ve been watching that space but over the last seven or eight years we’ve seen a change in the closing auction dynamics. The average inbalance at the close has reduced from about 10% to around 3%. Across the market you see evidence of orders being capped out quite regularly,” Mason said.

“There is more volume to trade. That liquidity has not vanished it’s just that people are managing their exposure during the Closing Auction and keeping volume out of the auction to manage their impact. We felt this was an area we could innovate around. With all this capped out liquidity we thought if we could bring that back to that single liquidity event then we can maximise on that. At the moment that liquidity is just sitting there.”

The exchange claims the new offering enhances speed of execution, meaning firms can now execute in one session as opposed to taking four or five days to unwind.