Tagged: opening auction

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…)

Did You Carry the One?

Suppose the chairperson of the national central bank strode from the organization’s Gothic façade on Maiden Lane and said, “Job growth is likely temporary, and folks are going to have to borrow money and buy stuff just to keep the economy running like a used Yugo.”

How would you expect stocks to react? Exactly. They would soar, as they did Monday March 26.

Speaking of bizarro-world, if you missed the BATS Exchange IPO drama Friday, you must have been on a monastic sojourn in the hinterlands. It showed several things. You can run a great business. You can raise money from investors. You can be quality folks who are nice to boot, as our friends at BATS are.

But if somebody forgets to carry the one in that mathematical equation for the opening auction, the incredible shrinkage occurring in the dollar can immediately translate to your shares, speeded up to nanoseconds.

Humor aside, we were asked by various members of the media (and quoted by the WSJ Saturday for the lead article on page one) and many clients about BATS. Should you worry about trading markets because the IPO for a technology-driven stock exchange failed?

Not for that reason. BATS will be fine. They will be back, and soon. Mark it.

But something should concern you. We’ll come to it in a moment. (more…)