Bats recently filed a proposal with the SEC to provide brokers with a market-on-close (MOC) order type that would provide them with the closing price auctions on the NASDAQ and New York Stock Exchange, for stocks listed on those exchanges, but with lower execution fees.
There are several reasons why we believe the proposed Bats Market Close is good for overall market microstructure.
Increased competition in the close will likely reduce fees for market participants.
Today, market participants who want to transact in the close are forced to participate in the listing market’s closing auction to receive the official closing price. They are also subject to the fees charged by the exchanges, which are consistently increasing. By injecting transaction fee competition into the close, we believe there will be a reduction in fees, similar to what we have seen as a result of competition in the continuous market.
There will be no impediment to price discovery.
The Bats Market Close would only execute paired MOC orders that do not directly impact prices. While the Bats proposal will likely reduce the number market orders pooled together at the primary listing markets, Bats will publish the size of the paired off flow in advance of the primary market’s cutoff time. Therefore, market participants will receive information to make any further order execution decisions.
The proposal adds no additional complexity to the markets.
We find the argument that the additional market data from the Bats Market Close proposal adds complexity to the markets to be misleading and self-serving by the exchanges. The addition of another imbalance feed takes minimal effort to process for market participants who already are required to re-aggregate multiple data feeds to determine liquidity in the closing auction.
As we stated in our previous comment letter to the SEC related to market data fees, Clearpool believes that to have a more fair and equitable market competition is a good thing.
To read our full comment letter on the Bats Market Close Proposal, click here.
If you have any questions regarding our comment letter or want to learn more about Clearpool, contact us.