AX is a the world’s first “Electronic Trading Network” (ETN) where institutional traders can proactively connect and trade with other counterparties in a secure environment. Unlike traditional stock exchanges/ECNs that show orders to everyone and traditional dark pools/crossing systems that show orders — presumably — to no one, AX allows institutional traders to pick and choose WHOM they want to notify and also WHAT information they want to share with them. In today’s world where more more and more liquidity is not being exposed to the market, traders need a way to proactively reach out to selected counterparties but in a way that protects their trading intentions and identity.
The AX Trading process begins when one trader sends an “initiated” order to AX. The order can be routed to the AX ATS via one of our broker sponsors such as Credit Suisse. This is a firm order of a minimum size. We accept Market, Limit and Pegged orders and the Initiator can also define a minimum execution size. The initiated order triggers a “Call Auction” on AX, a period of time when the order will rest in AX to be matched against other orders from auction responders.
The Initiator of an AX auction can decide both WHOM to invite to the auction and HOW MUCH information is shown to potential counterparties. These instructions are spelled out on the order ticket. They can run a “public” auction (DEFAULT), where alerts would be sent to all AX members. Or they can run a “private” auction which would be sent to targeted counterparties. The initiator can also decide to run a “blind” auction (DEFAULT) where the SIDE of the order is not disclosed, only SIZE (small, medium, large, etc) and SYMBOL are displayed. Or they can run a “disclosed” auction where the side of the order is disclosed. Based on these instructions, the AX ATS then creates and sends electronic messages — what we call Invitations to Trade (ITTs) — to selected counterparties.
These electronic messages are delivered via IM, email, Bloomberg, or FIX.
When invited participants receive their Invitations to Trade (ITTs), they can view any details of the AX auction that have been shared by the auction initiator. To participate in the auction, the trader can simply route an order to the AX ATS.
These can also be Market, Limit or Pegged orders and include a minimum execution quantity.
At the end of the AX auction period, all orders are brought together and a match is performed. Similar to the auction that is used to open and close many exchanges around the world, the AX auction will clear at the price that maximizes the size of the trade, satisfying the greatest number of buyers and sellers. This clearing price could be inside or outside the NBBO, the market price. If the clearing price is outside the NBBO, the AX ATS performs a market sweep in order to comply with the trade-through provisions of Reg. NMS. If there is no match in the AX auction, the initiated order can be sent to an AX algorithm where it will be worked in the market while the balance of the order is still available for crossing on AX. Often buyers and sellers may not respond during the auction period. By holding on to the initiated order and “working” it in the market, we greatly increase the chances of finding large buyers and sellers in the marketplace.
That said, the initiator can always cancel their order, either during the auction or after.