Brokers constantly strive to achieve best execution for their clients. This means navigating complex challenges like finding liquidity for large blocks, minimising market impact, and optimising execution costs. While speed is important, true execution quality often lies in having smarter tools. This is where A2X Markets’ Auction on Demand (AoD) holds its own – a unique, powerful mechanism designed specifically to empower brokers.
Forget simply chasing the fastest execution time; AoD, exclusively available on A2X in South Africa, offers tangible, practical advantages that allow you to trade more intelligently and deliver superior results. Let’s explore how you can leverage this innovative tool.
Taming Market Impact: Executing Blocks Discreetly with AoD
One of the biggest headaches for any execution desk is moving a large block of shares without alerting the market and causing the price to move away. This “signalling risk” can significantly erode execution quality. The continuous
lit market, while transparent, constantly broadcasts order information, making large orders vulnerable.
A2X’s Auction on Demand directly addresses this critical issue. Its core design centres around a contained auction process:
Orders are submitted into a brief, triggered auction event.
Resting interest isn’t continuously displayed to the public.
Matching occurs at a single price point during the “uncrossing” at the auction’s end.
This structure inherently reduces the information leakage associated with working large orders gradually in the lit market. You can participate in an AoD auction to find substantial liquidity without revealing the full size or urgency of your order prematurely.
Minimising Signalling Risk: Evidence-Based Advantage
This isn’t just theoretical. Studies from sophisticated European markets, where periodic auctions inspired AoD, provide compelling evidence. A June 2024 analysis comparing post-trade price movements found that periodic auctions demonstrated the lowest likelihood of adverse price shifts compared to both continuous lit and dark trading venues. By choosing to utilise AoD on A2X for sensitive orders, you leverage a mechanism proven to minimise market impact,
directly contributing to better execution prices for your clients and fulfilling your best execution mandate more effectively. Accessing this low-impact execution pathway is a key benefit of working with A2X.
Precision Tools for Optimal Execution: Leveraging AoD Features
Beyond its core discretion benefit, A2X’s AoD provides brokers with specific features offering granular control over execution strategy:
Target the Midpoint with Peg-to-Middle
Want to capture liquidity at the midpoint of the national best bid and offer (NBBO)? The Peg-to-Middle feature within AoD allows you to do just that. By submitting an order pegged to the midpoint, you can achieve price improvement relative to crossing the spread in the lit market. This is ideal for certain low-urgency strategies or when seeking to minimise costs further. A2X puts this sophisticated execution tactic at your fingertips.
Control Your Fill Size: Minimum Execution Quantity (MEQ)
Executing a large block often means avoiding numerous small, administratively burdensome fills. A2X’s AoD allows you to set a Minimum Execution Quantity (MEQ) for your orders. This ensures your order only participates in an auction uncrossing if it can achieve a fill meeting your specified minimum size. It provides crucial control, preventing fragmentation of your execution and ensuring meaningful blocks are traded when interacting with AoD liquidity.
Secure Internal Crosses with Broker Preferencing
Does your trade desk handle internal client crosses? Matching a buy and sell order from your own clients can be efficient but executing it safely on a public market requires care. A2X’s AoD includes a Broker Preferencing feature. If you submit matching buy and sell AoD orders from your firm that fall within the NBBO, this feature allows them to match preferentially during the auction uncrossing, eliminating the risk of being “picked off” or intercepted by external orders. It offers a compliant and operationally efficient way to bring internal liquidity to the regulated market, facilitated by the A2X platform.
Beyond Features: The Holistic Execution Advantage on A2X
The advantages of using AoD extend further. As highlighted in our recent webinar with technology partner Aquis, clever use of AoD can contribute to cost savings and potential price improvement for clients. Furthermore, the mechanism itself is designed to maximise the volume traded during each auction event, acting as an efficient liquidity discovery tool.
Integrating AoD into your execution toolkit, available only through A2X, demonstrably enhances your ability to:
Access liquidity discreetly.
Minimise negative market impact.
Exercise precise control over execution parameters.
Manage internal order flow efficiently.
Potentially achieve better pricing outcomes.
Ready to execute smarter? Explore the full potential of Auction on Demand on the A2X platform today.
Contact the A2X team to learn more or discuss optimising your AoD usage.
Phone: +27 11 088 5000 | Mail: info@a2x.co.za