ON-DEMAND AUCTIONS
A New Tool in the Quest for Liquidity
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ON-DEMAND AUCTIONS
A New Tool in the Quest for Liquidity
AUCTIONS: TIME-TESTED, PROVEN MARKET MODEL
Starting in 1817, the NYSE would run a singular auction for each listed security. Upon finishing all securities, the trading day would end.
Opening and closing auctions occur on nearly every exchange. At the end of the window, the auction runs with the objective of maximizing the quantity of shares.
Instinet and Posit developed
intraday crosses that utilize technology to run point-in-time crosses, aggregating multiple buyers and sellers into a single trade.
Trader-initiated auctions. Symbol-only alerts are sent for the auctions to begin. Execution prioritizes price discovery and aggregated quantity.
Pre-1871 NYSE
Call Auctions
Scheduled
Auctions
Open and Close Exchange Auctions
U.S. On-Demand Auctions
Auctions have been the workhorse for price and liquidity discovery in the U.S. financial markets.
Sourcing liquidity in small and mid-cap stocks
Avoiding information leakage
Beating my TCA benchmarks
Managing my broker relationship/
paying for research
Avoiding predatory algos
-Voya Investment
Management
0%
I spend a disproportionate
amount of my time sourcing liquidity in
small- and mid-cap stocks.
TOP CHALLENGES IN MANAGING TRADE FLOW¹
ACCESS TO LIQUIDITY IS A KEY SELECTION CRITERIA
Access to dark pools and liquidity in small and mid-cap stocks has consistently been a top driver when selecting algos and brokers. Liquidity sourcing algos are by far the most popular type of algo among buy-side traders, attracting over twice as much flow as the #2 algo, VWAP.
It's really important to understand what is my objective and how I can achieve that objective using a low-touch strategy.
39%
2
3
3
IMPORTANT CRITERIA FOR DETERMINING
THE QUALITY OF A TRADE¹
Discovering unique liquidity
Beating your benchmark
Completion of parent order
Post-trade impact
-Voya Investment Management
-Greenwich Associates
-CODA Markets
We’ve moved to a much more
holistic view of execution:
benchmarks, minimizing impacts, completing the parent order is
important as well.
TCA is an important tool
but it's not the only tool.
When a portfolio manager finally makes a decision to add a name
into their portfolio, the most
important thing is completing
that parent order. They’re not as
bothered with meeting a street-
wide benchmark. They want that
name in their portfolio.
HOW ON-DEMAND AUCTIONS WORK
The On-Demand Auction Process¹
Key Attributes of On-Demand Auctions¹
Advancements in technology and connectivity have enabled a new type of auction tool.
Source: Greenwich Associates 2017 Market Study and Trading Technology Study
-Voya Investment Management
On-demand auctions are a unique liquidity source. It’s definitely a positive source of liquidity that has improved my execution.
ON-DEMAND AUCTIONS STILL IN EARLY INNINGS
Current Adoption Levels³
Factors to Increase Adoption³
Just 1 in 10 buy-side traders currently have access to this kind of liquidity, and many more are
not even familiar with them. However, proven ability to source liquidity will spur adoption.
?
KEY TAKEAWAYS
Auctions are a proven, time-tested process for price and liquidity
discovery
Access to liquidity continues to be a top priority
Are on-demand auctions simple to use?
Yes. They fit into your current workflow as well as utilizing your existing brokers and order types.
On-demand auctions bring traditional auctions into the modern market era
What are the ways I can access on-demand auctions?
On-demand auctions can be accessed via broker algos or OMS/EMS connectivity.
Are my orders visible when I submit via on-demand auctions?
No. On-demand auctions operate non-displayed order books
so your order will not be visible.
What is the hit-rate of on-demand auctions?
Hit-rate is consistently higher than the traditional mid-point dark pool. CODA Markets, for example, has an 11% overall hit-rate and over 30% for unique names.
Frequently asked questions
NOTES
¹Greenwich Associates 2018
²Greenwich Associates 2018 North American Equity Investors Study
³Greenwich Associates 2017 Market Structure and Trading Technology Study
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