The Return of the Call Auction

Abstract

A call auction is a form of trading that died out in the precomputer age but has made its reentrance in electronic markets and is currently a significant component of major stock markets globally. In contrast with a continuous market in which a transaction is made any time a buy and a sell order meet or cross in price, call auctions batch orders together for execution in multilateral trades at specific points in time. The electronic call, an important innovation in market structure, has unique benefits concerning liquidity provision, intraday volatility control, and price discovery accuracy. NASDAQ introduced electronic calls to open and close its markets in 2004, and the NYSE did the same in 2007. Using data between 2010 and 2021 for these two markets, the authors assess how the opening and closing call auction volumes compare to the daily continuous trading volume and investigate the factors that impact the use of call auctions.