The SEC on Tuesday approved a new end-of-day pricing mechanism from Cboe Global Markets Inc. that allows traders to bypass fees charged by other exchanges for closing auctions, where official prices for many listed U.S. securities are set.
Cboe Market Close, expected to launch shortly on the company's BZX Exchange, will match end-of-day prices for securities listed on other exchanges. Cboe said in a statement that it was created "to meet widespread industry demand for a competitively priced, on-exchange alternative to participating in primary market closing auctions" where trading has become increasingly expensive.
"In recent years, both closing auction volumes and fees have continued to rise significantly," particularly with the shift toward index investing, Cboe said, with 7.2% of trading volume happening in primary exchanges' closing auctions in 2019, up from 4.9% in 2016.
The new feature will allow market participants to route market orders to Cboe that are pre-matched with other market orders and then executed when the primary exchange closing price is published, avoiding the need to pay closing auction fees to the primary exchanges.
It was created "to provide investors with greater accessibility and cost-efficiency to one of the most critical liquidity events of the trading day," said Bryan Harkins, Cboe executive vice president and head of markets, in the statement.
The SEC first approved the mechanism in January 2018 but was forced to review it after objections were filed by NYSE Group, Inc. and Nasdaq.
The final approval order notes that "Cboe Market Close should introduce and promote competitive forces among national securities exchanges for the execution of (market-on-close) orders" without disrupting the closing auction price discovery process or increasing the risk of price manipulation.
A Nasdaq spokesman declined to comment. An NYSE spokesman noted that the exchange cut closing auction fees in 2018, and said that centralized liquidity of its closing auction offers "real benefit" to investors and issuers.