Continuous Auction

Continuous Auction

The “Continuous Auction” trading model is an order-driven mechanism for continuous trading.

 

Market type

The Continuous Auction trading model is one of the multilateral trading models in which competing sell and buy orders from several parties can interact. Trading is order-driven, i.e. the buy and sell orders are collected in a central limit order book. As a rule, orders are executed immediately in the Continuous Auction.

 

There are two forms:

1. Continuous Auction with Market Makers

This begins with the pre-call phase, which is followed by an optional call phase. Pricing then takes place.

In the pre-call and call phase, all market participants can place, change and delete orders. Furthermore, Market Makers can enter, change and delete quotes.

Transparency

  • Pre-trade information:
    During the pre-call phase the order book is open to a depth of 1. All limit and market orders, as well as the quote with the accumulated order lot sizes of the best bid and offer limit are displayed. During the call phase of an auction, the order book is partially closed: Only the Market Maker quote is visible.
  • Post-trade information:
    On conclusion of the auction, the auction price, the volume executed in the auction, and the time of pricing are published immediately.

Pricing and order execution

  • Order prioritisation:
    All orders are collected in accordance with price/time priority.
  • Pricing:
    The auction price is determined according to the modified principle of highest volume transacted on the basis of the order book established at the end of the call phase and within a spread defined by a Market Maker quote or at precisely the quote’s buy or sell price.
  • Order execution:
    Orders are executed continually in accordance with price/time priority.

Incoming orders are executed immediately, on condition that the order can be executed in full against another order in the order book and/or against the Market Maker’s standard quote at a price within the standard quote.

If the order cannot be executed immediately, the call phase is automatically begun. The Market Maker’s matching quote ends the call phase and results in the order being executed.

In line with sorting by the price/time priority, orders with a higher buy and a lower sell limit have priority with regard to execution. Market orders have priority over limit orders. Should there be several orders with the same price limit, the order with the higher time priority is executed first.

The regulations governing price/time priority ensure that, at most, one limited or unlimited order is executed in part at the auction price.

 

2. Continuous Auction with a Specialist

This begins with the pre-call phase, which is followed by a freeze phase. Pricing then takes place.

During the pre-call phase all market members can place, change and delete orders. Furthermore, the Specialist can place, change and delete orders.

During the freeze phase, the order book is frozen. During the freeze phase, the system collects order inputs, changes and deletions in a “suspended portfolio” until the freeze is lifted, whereupon they are immediately processed.

During the freeze phase, the Specialist can place, change and delete orders in his own name or for other market participants.

Transparency

  • Pre-trade information:
    During the pre-call and freeze phase, the order book is partially closed, i.e. only the Specialist’s standard quote is visible. Only for the Specialist the order book is open in all phases, i.e. he can see every order and the customer behind it.
  • Post-trade information:
    On conclusion of the auction, the auction price, the volume executed in the auction, and the time of pricing are published immediately.

Pricing and order execution

  • Order prioritisation
    All orders are collected in accordance with price/time priority.
  • Pricing
    The auction price is determined according to the modified principle of highest volume transacted on the basis of the order book established at the end of the freeze phase and within a spread defined by a matching quote or at precisely the matching quote’s buy or sell price.
  • Order execution
    Orders are executed continually in accordance with price/time priority.
    For orders to be executed there has to be a change from the pre-call phase to the freeze phase. Initiated by the Specialist, this change occurs regularly only if orders can be executed against one another or against the Specialist’s standard quote.
    By inputting the matching quote, the Specialist concludes the freeze phase and triggers pricing. As such, he plays a pivotal role in determining the time of pricing and order execution.
    Because orders are sorted in accordance with price/time priority, orders with a higher buy and lower limit have priority with regard to execution. Market orders have priority over limit orders. Should there be several orders with the same price limit, the order with the higher time priority is executed first.
    The regulations governing price/time priority ensure that, at most, one limited or unlimited order is executed in part at the auction price.
 

Possible uses

The Continuous Auction with Market Makers or with a Specialist is particularly suited to trading less liquid securities such as shares in small and medium-sized enterprises, as well as bonds, retail funds, certificates, and warrants.

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