As the result of an ongoing research cooperation with the Swiss Stock Exchange, the Institute for Operations Research and Computational Finance (ior/cf-HSG) at the University of St. Gallen has published new findings. The working paper Liquidity-related Price Sensitivities of Closing Auctions in Equity Markets provides a quantitative insight over the risk of liquidity fragmentation and the related weakening of the price discovery process during the closing auction, leading potentially to some harmful price dislocation.
The Swiss Stock Exchange has been observing a lasting trend of increasing concentration of daily liquidity during the closing auction over the past few years. The price finding process that determines the daily closing price appears in turn even more significant.
Referring to various initiatives potentially leading to the fragmentation of existing closing auction liquidity, Adam Matuszewski, Head Equity Products, comments: “We welcome this publication by the University of St. Gallen on the topic of closing auction liquidity fragmentation. It addresses a very significant market structure topic.”
Close Collaboration with Academia
The Swiss Stock Exchange supplied detailed and granular order-level data in Swiss shares which allowed the University of St. Gallen to reconstruct the order books of all 30 Swiss Blue Chips in the Swiss Leader Index (SLI) during continuous trading phase as well as the closing auctions.
“At the Swiss Stock Exchange we remain committed to collaborate with academia to enhance the reputation of equities markets and improve the trading experience for the benefit of all market participants”, Adam Matuszewski added.
All Eyes on Auctions
In July 2020, the research paper “Risks associated with closing auction liquidity fragmentation” presented joint findings of the Swiss Stock Exchange and the University of St. Gallen on the nature of liquidity concentration and price discovery in closing auctions. Discover more