While the NYSE operates in an all-electronic manner temporarily, some Opening and Closing Auctions are executed via an Exchange-run process. These Exchange-facilitated auctions (EFAs) include price collars that limit the auction price to a specified distance from the final reference price.
As our previous post noted, DMMs can electronically open and close securities, and have facilitated well over 90% of the opening and closing auctions this week. When a DMM facilitates an auction, either manually via a human DMM on the Trading Floor or electronically via their algorithms, they are required to include all marketable interest in the auction execution. Auctions that cannot be facilitated electronically by DMM algorithms are currently facilitated by the NYSE’s EFA.
Since these EFAs will only execute up to the collar price, there is a potential that marketable orders (e.g. Market, MOO, MOC, or better-priced limit orders) will not be executed if the EFA is limited by the collar.1 In practice, we find that:
Over the first four days of the temporary Trading Floor closure, NYSE securities have had 21,500 Opening and Closing Auctions, over 90% of which have been executed by the DMM. Market order shares have remained unexecuted in fewer than 1% of total auctions.
|Total Auctions||Total Auction Volume||Auctions w/ Cancelled Market Orders||Total Market Order Shares Cancelled|
Collared auctions have occurred mostly in thinly-traded securities, where a small amount of trading interest can push the auction execution price a material distance from the auction reference price. The below charts compare the average difference between the final auction reference price to the actual auction price, plotted against average daily volume and sized by dollar value traded. These chart show:
MOC and LOC orders can be entered without restriction up to 3:50 p.m. ET. Firms can submit offsetting MOCs/LOCs up to 4:00 p.m. if a Regulatory Imbalance of 50,000 shares or more is published at 3:50 p.m. MOC/LOC orders submitted after 3:50 that do not offset a Regulatory Imbalance will be rejected by the exchange.
NYSE also offers an electronic Closing Imbalance Offset (IO) order type that can be used to offset imbalances, does not influence price formation, but is not guaranteed to participate. Closing IO orders can be used for any size imbalance and are accepted on both sides of the market up to 4:00 p.m. Similar to MOC and LOC Orders, they can be cancelled between 3:50 and 3:58 only for a legitimate error, and cannot be cancelled after 3:58 p.m.
Multi-list options broke nearly all volume records in 2021, driven by the growth of retail participation: daily records (24 of the top 25 volume days of all-time came in 2021), monthly ADV records (April was the only month from 2021 not in the top 12 all-time), and yearly ADV records (37.3M ADV in 2021 was nearly 10M more than in 2020 and double the ADV in 2019).
Increased retail activity in the equities market has affected which stocks are trading the most, and when and where those stocks trade. We’ve previously highlighted retail’s impact on pre- and post-market volume and the opening auction, and now focus on the period immediately after the opening auction. Market participants often avoid this time of day due to higher volatility, an approach worth re-evaluating given current trends.
As the home of ETFs, the NYSE continuously works to strengthen market quality and provide the optimal trading environment for listing and trading ETFs. In April 2021, in service of this goal, the NYSE introduced new requirements and incentives for its industry-leading NYSE ETF Liquidity Program, including the assignment of additional market makers ("Less Active ETF Leads") for new and/or low-volume ETFs.