(The following information and video was provided by Citadel Securities.)
Market participants have long debated whether continuous trading, used by the world’s largest exchanges, provides better outcomes for investors than a frequent batch auction process. Until now, the debate has remained theoretical, given the lack of opportunities to empirically assess the trade-offs between the two. However, in March 2020, the Taiwan Stock Exchange (TWSE) switched from a frequent batch auction process to continuous trading, providing an opportunity to evaluate, in actual market conditions, which market structure generates better outcomes for investors.
By comparing data from before and after the TWSE’s transition, Citadel Securities found that the benefits of continuous trading led to increased liquidity provision, lower bid-ask spreads, more stable prices, enhanced price discovery, and more volume, demonstrated by the following data points:
- Better liquidity provision with order book depth more than doubling and, for the most liquid stocks increasing 4-5x
- Lower bid-ask spreads that reduce investor costs by $550 million to $1.36 billion TWD
- More stable prices and enhanced price discovery with volatility decreasing 18%
- 15% higher trading volumes
Matthew Steinert, Head of Americas Business Development at Citadel Securities, said: “Our analysis clearly shows that continuous trading benefits retail and institutional investors as well as the real economy.”
Watch the following video to learn more about Citadel Securities’ analysis and related findings:
