Tagged: closing cross

The Auction

Boo!

What a Halloween week. To our many friends, clients and colleagues on the Atlantic seaboard assailed by Hurricane Sandy, we in Denver are rushing sunshine your direction.

Exchanges are hoping for sunshine too as trading resumes. It hinges on opening auctions. That gives us the creepy-crawlies, as though black cats were crisscrossing ahead as we ducked from ladder to ladder to avoid the falling sky.

Why? BATS Exchange saw its IPO torpedoed when the opening auction went awry. Flaws in the Facebook opening auction at the Nasdaq delayed quotes, and the fiasco lingers in recriminations and lawsuits. Knight Capital Group had bad software derail an algorithm hitting opening auctions.

We should note “closing auctions” too, since trading days begin and end with them. Some, like the Nasdaq, call them the opening and closing “cross” – not as though it’s catechism but because of what happens.

As Sandy stomped through Long Island Sound, the big equity exchanges including NYSE, Nasdaq, Direct Edge and BATS, were plotting how to get a good auction going today to restart markets dormant since Friday.

Now, stay with me. We have one aim: To explain why the Halloween auction is vital – and risky – and why auctions are both linchpins to price-discovery and the market’s Achilles Heel. (more…)