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

Abstract

Closing auctions are an increasingly important trading mechanism for passive funds that require
closing price execution. However, differences in auction mechanism design on NYSE and
Nasdaq may affect closing auction price efficiency. In particular, NYSE floor brokers can
submit orders later than other traders, and these orders remain hidden until minutes before
auction clearance. We show that NYSE closing prices are less efficient and NYSE pre-auction
information is less accurate due to the late submission option. However, auction quality
improved when NYSE halted floor trading during the COVID-19 pandemic. Our results
highlight an important tradeoff between auction flexibility and efficiency.

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

JEL Classification: G12, G14, D44