Call aucition trading¹

Abstract

A call auction is an order driven facility which, in contrast with continuous trading, batches multiple orders together for simultaneous execution in a multilateral trade, at a single price, at a predetermined point in time, by a predetermined matching algorithm. The chapter describes how orders are handled and clearing prices set in call auction trading, contrasts call auctions with continuous trading, and identifies different types of call auctions (including price scan auctions, sealed bid auctions, and open limit order book auctions). Attention is given to the use of information technology in call market design, the integration of an auction in a market’s micro-structure, and to the facility’s ability to deal with market quality issues such as containing intra-day price volatility, sharpening price discovery, and catering to participant demands for immediacy. To produce robust results, a call auction must attract sufficient critical mass order flow; the paper concludes by noting that, bec ause large traders in particular are reluctant to enter their orders early in the auction process, book building cannot be taken for granted.

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