Chapter 35 CALL AUCTION TRADING. 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. | Chapter 35 CALL AUCTION TRADING1 ROBERT A. SCHWARTZ Baruch College USA RETO FRANCIONI Swiss Stock Exchange Switzerland 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 microstructure 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 because large traders in particular are reluctant to enter their orders early in the auction process book building cannot be taken for granted. Keywords book building continuous trading critical mass order flow hybrid markets information technology intra-day price volatility order driven facility open limit order book auction price and time priority price discovery price improvement price scan auction sealed bid auction A call auction is an order driven facility that batches multiple orders together for simultaneous execution in a multilateral trade at a single price at a predetermined point in time. This contrasts with continuous trading where a trade can occur whenever a buy and a sell order cross in price. Our discussion of call auction trading is implicitly in the context of equity trading but the concepts involved apply to a far greater array of financial instruments
