The NYSE Significant Imbalance: Enhanced trading opportunities at the NYSE Closing Auction
Glenda Castaneda-Dawkins
Manager, Data Science, NYSE
Stefanos Bazinas
Senior Manager, Data Science, NYSE
Published
November 4, 2024
As we highlighted in our last blog post, the NYSE continues to innovate and modernize the information disseminated in the NYSE Imbalance Feed to boost transparency and provide actionable information to members looking to participate in the Closing Auction. On October 28th 2024 the NYSE replaced the calculation underlying the dissemination of its Regulatory Imbalance flag at 3:50:00pm, previously triggered for imbalances greater than 500 round lots (50,000 shares). The new Significant Imbalance flag uses a new dynamic calculation and gets populated if:
- The Closing Imbalance at 3:50:00pm is equal to or greater than
- 30% of the 20-day Average Closing Size for NYSE-listed securities in the S&P 500® Index
- 50% of the 20-day Average Closing Size for securities in the S&P 400® Index and the S&P 600® Index
- 70% of the 20-day Average Closing Size for all other securities, and
- The notional value of the 3:50:00pm Closing Imbalance (calculated as the product of the imbalance quantity and the reference price) is equal to or greater than $200,000.
The publication of a Significant Imbalance at 3:50:00 PM signals significant trading opportunities to market participants as it highlights imbalances with both large notional value and outsized imbalance quantity based on each symbol’s 20-day average closing auction volume. This provides a substantial enhancement to the previous Regulatory Imbalance calculation methodology, which was static and did not account for individual security trading characteristics.
During the first week since the implementation of the new methodology, we have observed notable changes in the publication of this imbalance flag at 3:50:00 PM:
- The Significant Imbalance flag has been triggered by no more than 151 symbols daily compared to an average of 313 symbols daily prior to the change in October and a YTD average of 341 when excluding month-ends (Figure 1 top pane). The number of symbols triggering the new Significant Imbalance flag for these days has been reduced by over 200 symbols each day compared to the old regulatory imbalance calculation (Figure 1 top pane - light grey bar).
- When looking at month-ends, on 10/31/24 the Significant Imbalance flag was triggered by 435 symbols, -32% less than the YTD average of 642 and 262 less that what would have qualified for a Regulatory Imbalance under the old methodology. These results indicate that meaningful imbalances (such as those on month-ends) continue to be flagged under the new methodology to enhance transparency and price discovery.
- Symbols which have passed the new Significant Imbalance thresholds have seen their slippage compress by -2.4bps (-25%) since the thresholds were applied to the imbalance flag calculation (Figure 2).
- Small-cap symbols (as proxied by the S&P 600® Index) have seen the greatest benefit since the change; over 46% of the S&P 600® symbols which have had a Significant Imbalance flag since 10/28/24 would not have been flagged under the previous methodology (Figure 3).
Figure 1
Daily Number of Symbols with Regulatory / Significant Imbalance Flag
Figure 2
Symbol Median Slippage Based on Regulatory / Significant Imbalance Threshold
Figure 3
Symbols with Significant Imbalance Flag Post-Change
New opportunities
As previously discussed in our Offsetting a Regulatory Imbalance post, the Significant Imbalance (previously Regulatory Imbalance) flag plays a vital role in the way market participants participate in the NYSE Closing Auction. Although MOC and LOC orders can normally only be submitted up until 3:50:00pm, the Significant Imbalance flag provides an opportunity for MOC and LOC order entry for an additional ten minutes until 4pm on the opposite side of the Significant Imbalance. This new calculation methodology ensures that market participants have the most accurate and relevant information for accessing Closing Auction liquidity during the crucial last ten minutes of the trading day.