Vestigial Tails? Floor Brokers at the Close in Modern Electronic Markets

67 Pages Posted: 28 May 2020 Last revised: 2 Oct 2020

See all articles by Edwin Hu

Edwin Hu

New York University School of Law

Dermot Murphy

University of Illinois at Chicago

Date Written: May 13, 2020

Abstract

Closing auction volume is steadily increasing on NYSE and Nasdaq, and now represents over 10% of trading volume. The NYSE closing auction design is highly advantageous to NYSE floor brokers, who have near-exclusive access to the auction from 3:50 pm to 4:00 pm. We show that closing auction quality, as measured by the accuracy of closing auction information feeds and efficiency of closing prices, is significantly worse on NYSE. However, closing auction market quality generally improved when NYSE halted floor trading during the COVID-19 pandemic. We use "triple-witching" days and portfolio-rebalancing days as instruments for auction interest to further show that NYSE closing auction quality is less resilient to liquidity demand shocks.

Keywords: closing auctions, floor brokers, auction efficiency, D-Orders, COVID-19

JEL Classification: G12, G14, D44

Suggested Citation

Hu, Edwin and Murphy, Dermot, Vestigial Tails? Floor Brokers at the Close in Modern Electronic Markets (May 13, 2020). Available at SSRN: https://ssrn.com/abstract=3600230 or http://dx.doi.org/10.2139/ssrn.3600230

Edwin Hu

New York University School of Law ( email )

40 Washington Square South
New York, NY 10012-1099
United States

Dermot Murphy (Contact Author)

University of Illinois at Chicago ( email )

2114 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
312-355-4372 (Phone)

HOME PAGE: http://sites.google.com/site/murphyderm

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