Intercontinental Exchange Inc. Chairman and CEO Jeffrey Sprecher is warning that the entrance of one of its largest rivals into the closing auction process could create "massive fragmentation of the close."
U.S. Securities and Exchange Commission staff in mid-January approved a plan from Cboe Global Markets Inc. to allow the exchange operator to stake a claim in the closing auction process, which has historically been dominated by ICE-owned New York Stock Exchange and Nasdaq Inc. Through its plan, Cboe says it can provide a cheaper closing auction alternative for New York Stock Exchange- and Nasdaq-listed stocks by allowing market participants to begin routing market-on-close orders through its exchange. By doing so, Cboe would also add another venue to the already crowded closing auction space.
"It's hard to know what the cost benefits of a highly fragmented market will be to save a few pennies," ICE's Sprecher said during a Feb. 7 earnings conference call.
ICE and Nasdaq both promptly rebutted the SEC's staff approval, asking the regulator's full five-person commission to review the decision. In its official review petition, ICE claimed Cboe's proposal could undermine investors' confidence in the listing exchange's closing price-discovery process and "open up new avenues for potential manipulation" of the price.
On more volatile trading days, such as Feb. 5, adding another closing auction venue could end up making it more difficult for exchange-traded funds and stocks to settle at an appropriate price, Sprecher said. Some listed companies have also began raising concerns over the potential impacts more fragmentation could have on their stocks' closing auctions, he added.
