Cboe gets nod to challenge NYSE, Nasdaq for closing stock orders

NEW YORK (Reuters) - The Securities and Exchange Commission on Wednesday approved a proposal from No. 2 U.S. stock exchange operator Cboe Global Markets Inc to compete for end-of-day orders for stocks listed on the New York Stock Exchange and Nasdaq Inc.

The approval breaks what has effectively been a duopoly on the stock market close, one of the busiest and most lucrative trading periods of the day, by the Intercontinental Exchange Inc-owned NYSE and Nasdaq.

"We are encouraged that the SEC staff approved the proposal," Bryan Harkins, Cboe's head of U.S. equities and global FX, said in a statement. "We look forward to bringing more competition to the market as a result."

Cboe announced in May it planned to offer brokers an order type that would give them the same official closing auction prices from Nasdaq and the NYSE for stocks listed on those exchanges, but with lower execution fees. The exchange operator said the move was in response to frustration voiced by industry participants over rising closing auction prices.

Closing auctions attract trillions of dollars' worth of trades as fund managers generally price their assets to the closing prices of listing exchanges and execute most of their orders at that time.

The average daily volume in closing auctions has risen more than 70 percent, to almost 350 million shares, in the past five years, while fees have increased from 16 percent to 60 percent at the NYSE and Nasdaq respectively, Cboe has said.

Cboe lists its parent company's stock, but otherwise does not have a corporate listings program.

NYSE and Nasdaq have said diverting trades away from closing auctions would fragment the process, creating volatility and resulting in less accurate pricing for securities.

Cboe said the price discovery process would be unaffected because the exchange would only offer "market on close" (MOC) orders, which are instructions to execute trades at the final closing auction price, and not "limit on close" orders, which specify price limits.

On Jan. 8 NYSE lowered its fees for MOC orders. The move will "encourage higher volumes of MOC orders at the close, which should result in a higher level of orders matched and greater liquidity for all exchange auction participants," NYSE said in a SEC filing.

The Cboe Market Close could be in place within a year, Cboe President Chris Concannon told reporters in New York earlier on Wednesday.

(Reporting by John McCrank; Editing by Matthew Lewis)