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Do intra-day auctions improve market liquidity?

Author

Listed:
  • Gan, Quan
  • Leung, Henry
  • Zhou, Zhou

Abstract

The intra-day auction launched by the London Stock Exchange (LSE) on 21 March 2016 was designed as a mechanism to boost midday liquidity. During the auction time, Multilateral Trading Facilities (MTFs) as competitors of the LSE, continue their normal trading. We examine the midday liquidity changes on both the LSE and MTFs and analyze their implications on platform competition. The intra-day auction in general improves liquidity at midday on both the LSE and MTFs. The intra-day auction helps consolidate the primary status of the LSE by increasing its market share at midday. Liquidity on MTFs drops considerably during the auction and bounces back toward the normal level when the auction ends. Overall, the midday liquidity patterns indicate the LSE's competitive advantages over MTFs in providing market liquidity after the launch of the intra-day auction.

Suggested Citation

  • Gan, Quan & Leung, Henry & Zhou, Zhou, 2021. "Do intra-day auctions improve market liquidity?," Finance Research Letters, Elsevier, vol. 40(C).
    • Handle: RePEc:eee:finlet:v:40:y:2021:i:c:s1544612320315889
    DOI: 10.1016/j.frl.2020.101774
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    References listed on IDEAS

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    Cited by:

    1. Jusselin Paul & Mastrolia Thibaut & Rosenbaum Mathieu, 2021. "Optimal Auction Duration: A Price Formation Viewpoint," Operations Research, INFORMS, vol. 69(6), pages 1734-1745, November.

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    Keywords

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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