Call Auction Research Articles

A Privacy Protection Scheme for Bidding Users of Peer-to-Peer Electricity Call Auction Trading in Microgrids

Renewable energy generation is greatly affected by the weather, and electricity is not easily stored in large quantities. So, the call auction trading based on the rule of the maximum trading volume is of great significance to promote the electricity consumption of microgrids. Therefore, in microgrid electricity call auction trading, aiming at the problems, such as bidding messages may leak users’ privacy, they may also be eavesdropped or tampered with in the bidding process, and the balance between privacy protection and supervision cannot be achieved, a privacy protection scheme for bidding users of peer-to-peer electricity call auction trading in microgrids is proposed. It consists of a market layer and a blockchain layer. Based on the improved certificateless ring signcryption and timed-release encryption algorithms, the market layer is used to hide the user's real identity while encrypting the bidding message and track illegal users. The blockchain layer is used for trading settlement and trading record storage to ensure data storage security. The security is proved theoretically. Performance analysis and simulation results indicate that computational and communication costs are low. Especially the verification cost is low and increases slowly with the increase in the number of ring members.

Call Auctions with Contingent Orders

We introduce a new mechanism for call auctions which are widely used in stock exchanges. Our unique design incorporates contingent claims (buy stock A, if selling stock B) into the price discovery process. With our proposed mechanism, we show that higher liquidity during the call auctions is achieved, as well as lower volatility after the call auctions. Moreover, we show that current call auctions and the proposed mechanism have similar incentive properties. Hence, we argue that the proposed mechanism would be an improvement over the existing opening auction rules at stock exchanges.

A Loyalty System Incorporated with Blockchain and Call Auction

A loyalty program is a type of incentive to reward customers’ perceived value and enhance their purchasing behavior. The key to the success of a loyalty program is to allow customers to more actively participate in the program. One possible solution is to allow customers to sell out idle loyalty points and buy in the points that they need. On the basis of a call auction, this study designs a peer-to-peer exchange mechanism for customers to realize the above trade. In addition, a blockchain-based system is developed to support the issuance, redemption, and exchange of loyalty points. In this study, Hyperledger Fabric is adopted as the underlying blockchain technology because it has some features that are beneficial to a cross-organizational coalition loyalty program. This study also proposes a feasible multi-host deployment scheme for the Hyperledger Fabric blockchain network that is suitable for our application scenario. Finally, some implementation results are given to demonstrate the system process from the perspective of the application layer. The mechanism proposed in this study is helpful to improve the likelihood of successfully exchanging points, thus accelerating the circulation and use of loyalty points.

A Study on the Mechanism and Pricing of Drainage Rights Trading Based on the Bilateral Call Auction Model and Wealth Utility Function

In the context of the high incidence of flooding disputes among neighboring subjects in the basin, exploring the drainage rights trading mechanism and clarifying the pricing method of drainage rights are new ideas to manage flooding disasters. In this study, the trading mechanism of drainage rights is constructed using a bilateral call auction model, in which the price constraint, the control total quantity constraint, the clearing rule, and the matching rule are explained. In addition, we adopt the wealth utility concept to construct a function, apply the social welfare function to associate the wealth utility functions of both sides of the transaction, and draw on the environmental Gini coefficient concept to construct a pricing model for drainage rights transactions based on fairness and efficiency. Finally, we conduct an arithmetic simulation of the drainage rights trading mechanism and transaction pricing for China’s Jiangsu section of the Huaihe River Basin. The study’s results show that the trading mechanism model can give the optimal trading scheme when multiple subjects are trading drainage rights. This fills the gap in existing studies and can lead to efficient trading of drainage rights. At the same time, the pricing model can give the optimal transaction price that considers efficiency and fairness, providing a more practical pricing theory for drainage rights trading.

The Return of the Call Auction

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.

The Return of the Call Auction

The Return of the Call Auction

Call auction design and closing price manipulation: Evidence from the Hong Kong stock exchange

The Hong Kong Stock Exchange adopted a standard closing call auction mechanism in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange revamped the mechanism with manipulation-deterrence enhancements and relaunched it in 2016. We exploit this unique setting to examine the effect of call auction design on closing price manipulation. Our results indicate that the standard call auction mechanism is vulnerable to closing price manipulation. Under this mechanism, overnight price reversal is more pronounced on days when derivatives expire and on days when large orders were submitted just before the market close.

Call auction, continuous trading and closing price formation

The Shanghai Stock Exchange changed its trading mechanism of the preceding three minutes to closing from continuous trading to call auction on August 20, 2018, while Shenzhen had already changed this in 2006. Taking all A-shared stocks’ data from 2017 to 2019 as our sample, we construct difference-in-difference models and find significant trading volume shifts from closing call to preceding continuous trading. We also see a significant increase in volatility in call preceding continuous trading, but a significant decrease in closing price deviation in a closing call. Market efficiency is found to be improved by these changes, perhaps due to less liquidity noise in the closing price. Our conclusions remain robust in various robustness checks. It suggests that the introduction of closing call auction would reduce manipulation and liquidity noise in the closing price, thus improving market efficiency in China.

Mid-Day Call Auctions

In illiquid and fragmented limit order book markets, asynchronously arriving buyers and sellers have a coordination problem. This problem is particularly strong mid-day, when trading is generally thin. We evaluate a market structure reform at Nasdaq Nordic, where the continuous trading session is replaced mid-day by a five-minute call auction. We find that the mid-day call auction works as a coordination device, reducing transitory price impact. The call auction attracts end investors rather than intermediaries. Stocks with greater end investor flows show stronger benefits of the call auction. The results indicate that mid-day auctions can improve continuous markets.

Call of Duty: Designated Market Maker Participation in Call Auctions

Many equity markets combine continuous trading and call auctions. Oftentimes designated market makers (DMMs) supply additional liquidity. Whereas prior research has focused on their role in continuous trading, we provide a detailed analysis of their activity in call auctions. Using data from Germany’s Xetra system, we find that DMMs are most active when they can provide the greatest benefits to the market, i.e., in relatively illiquid stocks and at times of elevated volatility. Their trades stabilize prices and they trade profitably.

Call Auction Mechanism and Closing Price Manipulation: Evidence from the Hong Kong Stock Exchange

The Hong Kong Stock Exchange (HKEx) adopted a closing call auction in 2008 but suspended its operation ten months later due to suspicion of widespread price manipulation. The Exchange relaunched the auction in 2016 with manipulation-deterrence enhancements. We exploit this unique setting by applying a triple-differences (DDD) methodology to examine the causal effect of call auction design on closing price manipulation. Our results indicate that a plain-vanilla call auction mechanism is prone to closing price manipulation. Under this mechanism overnight price reversal is more pronounced on days when derivatives expire and on days with large orders submitted just before the market close.

Research and Application of Continuous Bidirectional Trading Mechanism in Yunnan Electricity Market

To further promote market competition, enrich trading varieties, alleviate information asymmetry, and improve trading efficiency during electricity market reform in China, the continuous bidirectional transaction (CBT) was designed and applied in the Yunnan electricity market (YNEM), which is dominated by medium- and long-term power energy trading. The clearing model for the CBT with the goal of maximum social welfare is proposed in two bidding stages, including call auction (CA) and continuous double auction (CDA). Correspondingly, the integrated two-stage market clearing algorithm is also introduced to ensure the data consistency and business continuity. Finally, the analysis of the practical application shows that the proposed model, algorithm, and various key implementation strategies of the trading platform support the bidding and clearing of the CBT well. In addition, the research and application of CBT may also provide valuable insights for other electricity market construction.

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

The bubble-and-burst pattern in asset markets is among the most replicable results in experimental economics. Using controlled laboratory experiments, we compare mispricing in markets organized by standard double auction rules with mispricing in markets organized by two alternative sets of clock auctions. The double Dutch auction, shown to be more efficient than the double auction in past commodity market experiments, does not eliminate bubbles. However, the English Dutch auction yields prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in a declining fundamental value environment with an increasing cash-to-asset ratio. (JEL C91, D44, G12)

INFORMATION CONTENT OF STOCKS IN CALL AUCTION OF SHORTER DURATION IN EMERGING MARKET

Pre-open auctions have been widely implemented across trading exchanges. Pre-open auctions tend to reduce information asymmetry and trading risks. Call auctions have been encouraged to enhance price discovery. This paper explores the shifts in information content of the pre-market auction session over time. We derive that the information content of the pre opening auction did improve little after a gap of two months. We conclude that the intraday 15 minutes realized volatility was influenced by information content in the pre-market. We demonstrate that volatility is the cause of order imbalance or a cause of poor information content. The investigation of the related volatility in the futures segment provides interesting insights on the unusual pre-market imbalances visualized on days close to expiry of futures.

Designing Call Auction Institutions to Eliminate Price Bubbles: Is English Dutch the Best?

The bubble and burst pattern in asset market experiments is among the most replicable results in experimental economics. Numerous studies have searched for means to reduce this mispricing. Using controlled laboratory experiments, we compare mispricing in standard double auction markets to prices in two clock auctions. The double Dutch auction, shown to be more efficient than the double auction in commodity market experiments, does not eliminate bubbles. However, the English Dutch auction does yield prices reflective of underlying fundamentals and succeeds in taming bubbles even with inexperienced traders in the common declining fundamental value environment.

Call auction frequency and market quality: Evidence from the Taiwan Stock Exchange

Financial market quality is generally assessed with respect to efficiency, liquidity, and stability. The frequency of trading contributes to these attributes. The Taiwan Stock Exchange uses a periodic call auction as its main trading mechanism. From 2010 to 2014 the call auction interval was reduced four times, from 25 to 5 s, providing a natural experiment to test the impact on market quality. Using multiple measures of efficiency, liquidity, and stability we provide evidence that the reductions in call auction interval have improved overall market quality. We find that higher auction frequencies are associated with a lower trade-to-auction ratio and less aggressive trading behaviour. The evidence suggests that there are more gains to be made through further reduction in the call auction interval to around 2 s.

Price Informativeness and High Frequency Trading in Electronic Call Auction Markets

Are high–frequency traders (HFTs) informed? To address this question, we examine HFTs’ activity in the call auction environment, where speed-related trading is limited and signal processing capacity becomes more relevant. To model the call market, we consider the Kyle (1989) rational expectations framework for strategic trading. The test we propose for detecting informed HFTs in this market assesses potential deviations of the informativeness of HFTs’ aggregate (net) demand, from the informativeness of the aggregate demand submitted by the rest of the traders. Data from the Euronext Paris preopening phase indicate that informed HFTs are present in the market just before the opening. Our results provide useful guidance for the assessment of the influence of HFTs’ quotes on price quality, an important issue for market regulators and policy makers.

Montecarlo Simulation of Pre-Opening Call Auction Prices

Montecarlo Simulation of Pre-Opening Call Auction Prices

Closing Call Auction Prices as Settlement Prices for Derivatives Contracts and Price Manipulation

Previous literature emphasizes the importance of a closing call auction system because it can not only improve the price discovery effect, but also mitigate the possibility of price manipulation. However, Korea Exchange, which has adopted a closing call auction system, has still suffered from the price manipulation, most cases of which are likely to be related to the derivatives contracts. Based on this environment, this paper investigates why KRX experiences the closing price manipulations so much, even though it adopted the closing call auction system. Generally, a price manipulation occurs when the legal/administrative penalty is less than the expected economic gain or when a specific market structure increases an incentive to manipulate the price. In this paper, we find that the adoption of a closing call auction price as a settlement price for KOSPI derivatives contracts strengthens the incentive for closing price manipulation, which is supported by Kyle (2007). Kyle (2007) shows that if a closing price is used as a settlement price and investors can execute the ‘market-on-expiration orders’ surely, the derivatives with cash settlement are susceptible to the price manipulation such as squeezing or cornering, equally as the derivatives with physical settlement. As such, KRX is the only financial market that satisfies the above conditions. This paper tries to verify this argument by introducing the Hong Kong Exchange case, the Korean ELS-related manipulation case and the Deutsche Bank case. Therefore, we strongly recommend changing the settlement price of KRX derivatives contracts into an average price, which is similar with the well-developed financial markets.

Exact and Asymptotic Solutions of the Call Auction Problem

The call auction is a widely used trading mechanism, especially during the opening and closing periods of financial markets. In this paper, we study a standard call auction problem where orders are submitted according to Poisson processes, with random prices distributed according to a general distribution F, and may be cancelled at any time. We compute the analytical expressions of the distributions of the traded volume, of the lower and upper bounds of the clearing prices, and of the price range of these possible clearing prices of the call auction. Using results from the theory of order statistics and a theorem on the limit of sequences of random variables with independent random indices, we derive the weak limits of all these distributions. In this setting, traded volume and bounds of the clearing prices are found to be asymptotically normal, while the clearing price range is asymptotically exponential. All the parameters of these distributions are explicitly derived as functions of the parameters of the incoming orders' flows.