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One solution to this dilemma might be to increase the size of child orders beyond the large-in-scale thresholds and to migrate them to block trading venues. Another — and probably better — solution would be trading these orders in the deep liquidity pools of the home market, especially in auctions.
It is an ideal facility to trade large sizes at fair and reliable prices, formed by a multitude of market participants interacting with each other in the process of price formation. The Xetra intraday auction takes place at 1pm CET each trading day and serves the same purpose as the opening and closing auctions on Xetra.
In contrast to continuous trading, auctions batch liquidity and calm down the market. They contribute significantly to price discovery: Prices determined in an auction have proven very reliable since they are a result of strong demand and supply conditions.
A major finding was that the indicative Xetra auction prices were more informative than actual trade prices on competing platforms. In an auction, large trades can be executed. In Q3 , the average trade size in the Xetra Intraday Auction was almost eight times higher than in continuous trading see Figure 1.
These are precisely those execution opportunities that the buy-side is currently looking for. Trading in auctions is naturally slower than continuous trading. This phase is required in order to prevent gaming of the auction price. Eventually, this intentional slowdown of trading leads to a situation that some investors might highly appreciate: This fact might be perceived as highly attractive for the buy-side. The vast majority of this figure stems from the closing auction, whereas the intraday auction still has significant growth potential.
Currently, around two per cent of total daily volumes in DAX shares are traded via the intraday auction. With other markets picking up this trading form more and more market participants will almost certainly adapt the idea of intraday auctions and start participating, eventually creating a virtuous circle of liquidity. Another important factor that will influence how fast and to what degree the intraday auction model will be adapted by market participants would be the trading fees.
Thus, auction trading costs far less than half a basis point on Xetra. The restrictions expected with MiFID II coming into force should pull trading volume from dark pools to regulated and transparent trading venues like Xetra.
The current change has the potential to shift more trading to the lit venues, which will eventually further strengthen the existing transparent liquidity pools and thereby their price discovery function — a feat that is of paramount relevance for both investors and the general public. The Market Status Indicator displays the current technical availability of the trading system. It indicates whether Xetra newsboard messages regarding current technical issues of the trading system have been published or will be published shortly.
We strongly recommend not to take any decisions based on the indications in the Market Status Indicator. Please always check the Xetra newsboard for comprehensive information. Back to page Print. Navigator Who are you? I am looking for Specialist Designated Sponsor Back. Investor Capital Market Advisor Back.
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