CBOE plays for time

Darren Sinden

“By moving the close cut off time on CBOE BZX Equities Exchange, market participants will have much more flexibility on where to post their orders at the end of the day” says Adam Inzirillo, Head of North American Equities at CBOE

US exchange group the CBOE is looking to extend the trading hours on two of the four equity exchanges that it owns and operates.

The Chicago based business has approached regulators with a view to extending the close cut off period on its BZX exchange by 5 minutes to allow this period to run through to 3.59 pm Eastern Time.

The move is designed to provide traders with a greater degree of latitude for end of day orders and the proposal comes after a period of consultation by the exchange with its end users.

CBOE’s head of North American equities, Adam Inzirillo, was quoted as saying that “By moving the close cut off time on CBOE BZX Equities Exchange, market participants will have much more flexibility on where to post their orders at the end of the day.”

End of day trading can be a particularly busy period on US equity trading venues as traders look to complete orders that have been worked over the day or square away positions and level off market-making books.

BZX starts distributing order imbalance data among participants an hour before the close, and currently orders submitted for the closing auction cannot be amended after a 3.55 pm cut off time, with the auction itself taking place at 4.00 pm Eastern Time.

By extending the close cut off time to 3.59 pm BZX wants to give traders the chance to amend orders in the closing auction right up until the last minute.

The CBOE recently published data that showed that order volumes, as measured by the number of transactions submitted per second on equity exchanges, including Nasdaq and NYSE and NYSE ARCA, increased by as much as 75% in the run-up to the closing auctions, compared to earlier in the day.

The research suggested that for the month of October 2020 the closing auction accounted for an average of 4.50% of total equity turnover, as a consequence of which there is often higher liquidity and narrower spreads within the auction than at other periods within the trading day.

By extending the close cut off period to 3.59 pm BZX hopes to leapfrog the Nasdaq and NYSE whose current cut off points are set at 3.58 pm an additional minute within the trading day may not sound like much of an advantage.

However, those 60 seconds are an eternity in the world of high-frequency trading and the additional window will provide opportunities for greater price discovery and possibly arbitrage between exchanges.

BZX is not the only CBOE owned exchange that is looking to amend its opening hours, EDGX will begin to trade from 4.00 am Eastern Time from December 7th.

The exchange is very popular with out of hours retail traders in the USA and elsewhere, and trading hours are being extended to cater to this audience. Earlier this year EDGX introduced retail order priority to provide improved execution quality and trading outcomes for individual investors, by reducing their time to execution.

Under the protocol, retail clients limit orders are pushed to the front of the EDGX order book queue though clients are restricted to an average of 390 orders or less per day over a calendar month.

Intense competition between equity execution venues means that exchanges are trying to differentiate themselves and carve out a niche for their businesses, Cboe seems to be at the forefront of this, it remains to be seen if or how its larger rivals will react.

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