June 6, 2017
June 6, 2017
The BATS Alternative to the Closing Auction, BMC or SR-BatsBZX- 2017-34
For those who are concerned about the impact of the BMC on liquidity and price formation in the equities market there are four major issues:
1. Liquidity – Approximately 5.6% of market volumes trade at the close
2. Price Discovery – with such significant volume in the closing print there is concern around the impact on price discovery
3. Competition among orders – an important hallmark of price discovery
4. Information dissemination – more venues create more information that needs to be digested from a fragmented market
Lets look at these points:
1) Liquidity – since the plan for BMC is simply to print the shares that are paired off there will be no change in the available liquidity, just that some of it will print at a different venue
2) Price Discovery – again, since only the paired shares will be printed they will not impact price discovery
3) Competition among orders – since there is no competition in orders that are paired off whether they print at the listing exchange or another venue should not matter
4) Information dissemination – BATS has stated that it will disseminate the paired quantities at 3:35pm as it returns the unpaired shares to their owners, so whatever the impact of the quantity of paired shares is on the closing price should not change
The advocates of the BMC argue that competition and saving money is a good thing. We at PDQ Enterprises, operator of CODA Markets, would agree.