Doesn’t periodic trading mean I’ll have less liquidity?
Some investors may perceive periodic trading as a limitation, because when the market is open, they are not able to transact whenever they choose. However, for financial products that do not trade regularly, such as shares in small and medium-sized businesses, periodic auctions tend to produce a fairer price for all investors and therefore may actually encourage more liquidity, according to research by academics, Economides and Schwartz.
In a continuously traded market, the economic costs for investors are very high, if the financial products rarely trade. Investors’ economic costs include large bid-ask spreads, high commission, significant market impact of individual orders, and the susceptibility of orders to ‘front-running’. Front running is where other investors take advantage of the temporary price movement a large order may cause, to the detriment of the investor who made that order. This can discourage investors from trading, making liquidity even worse.
Periodic auctions reduce trading costs for investors by consolidating all order flow, over a period of time, and executing all successful orders at a single price. Consequently, this eliminates bid/offer spreads and the possibility of front-running. The increased ‘fairness’ in pricing can maximise whatever liquidity there is, in any given period. For more information, read our blog on why periodic auctions are better suited to smaller businesses.
How is the price set for financial products?
Unless the product information page says the financial products have a fixed price, the price is set by the auction itself, by assessing all the current valid bids and offers. Essentially this is like looking for the price at which the supply (people willing to sell) and demand (people willing to buy) intersects.
The auction calculates the price in real time by looking for the price at which the largest volume of financial products would successfully trade.
There is further detailed information on how the auction sets the price for financial products, in differing circumstances, which you can read about here.
What does the order book show?
The order book for a secondary market auction shows the number of financial products being bid or offered on, at a range of price points. You can click on the top line or the bottom line to see any bids and offers outside this range (if there are any). The order book tells you how far you might have to move your bid or offer price from the current indicative closing price, in order to successfully trade the number of financial products you want to trade, i.e. 'market depth'.
Auto bids and auto offers are only shown in the order book when they have orders they could trade with. Although the order book shows the prices bids and offers have been submitted at all bids and offers are anonymous. For more information, have a read of our page on marketplace mechanics.
This short video explains how to understand the order book.
How do I know that the person selling a financial product actually owns it?
Catalist maintains a record of who owns the financial products on our platform. Investors are unable to submit offers to sell financial products, unless our platform records them as the legal owner, or entitled to act on behalf of the legal owner.
This means you can be confident that, if you submit a successful bid to buy financial products, you will receive ownership of the financial products, in accordance with our settlement rules.
How do I submit a bid or offer?
You can only submit bids and offers when an auction is open. You can update existing bids and offers when an auction is in pre-closing. This video will walk you through the process of submitting a bid or offer – and checking the status of it in your dashboard.
For more information, have a read of our page on marketplace mechanics.
How do I know what price to submit a bid or offer at?
First you should read all the information provided about the business and the financial product you wish to buy or sell. This can be found on the business’s product page and should help you understand the value the business believes their financial products should have.
If there are enough investors that have already submitted bids and offers, our platform will tell you, in real time, what the price of the financial products would be, if the auction were to close at that moment. This is just an indicative price – it can change as other investors submit or withdraw their bids and offers. However, you will be able to see if your bid or offer is likely to be successful. You can also view the live order book tab, which shows the number of financial products being bid or offered on, by other investors, at a range of price points.
Consider the highest price you’d pay, if you are buying, or the lowest price you’d accept, if you are selling. This is your most ‘competitive’ price, which is the price you are most likely to be successful at, if you submit it in the auction. However, at the end of the auction, all investors get the same price, based on everyone’s most competitive bids and offers. This means you can even get a price that is better than your bid or offer price.
Remember that your bids and offers will be binding and cannot be cancelled after the ‘open’ period has ended. Further information about submitting bids and offers and their priority is available here.
Can I submit more than one bid in the same auction?
Yes, you can submit more than one bid in the same auction – but make sure you are prepared to pay for the full quantity of financial products from all your bids, if they are all successful.
Can I submit more than one offer in the same auction?
Yes, you can submit more than one offer in the same auction – but make sure you are prepared to sell the full quantity of financial products from all your offers, if they are all successful.
Can I submit an offer as well as a bid in the same auction?
Yes, you can submit bids and offers in the same auction, as long as your bid price(s) is lower than your offer price(s). This is to ensure you don’t end up trading with yourself.
How can I see the status of my bid or offer?
You can see the status of all your current bids and offers in the “My bids/offers” tab in your dashboard. You can also see your live bids and offers, relating to a particular auction, on the relevant business’s product page. Just go to the “My holdings/orders” tab, located in the “Auction information” section at the top of the page.
How can I withdraw my bid or offer?
You can only withdraw a bid or offer during the open period of an auction. To do this, go to your dashboard and click on the “My bids/offers” tab. Tick the box next to the bid(s) or offer(s) you want to withdraw and click on the relevant ‘Withdraw bid” or “Withdraw offer” button. Click “Confirm” to confirm the withdrawal.
Remember the end of the open period can change by +/- 2 minutes from the estimated time to avoid price-manipulation caused by last minute orders. You will need to have completed the full process before the open period of the auction ends.
How can I increase my chances of buying the full number of shares I want?
You can maximise your chances of buying the full number of shares you want by submitting your best bid, meaning the highest price you are prepared to pay, per share or per other financial product, as early as possible in the auction.
Bids at a higher price have priority and are therefore more likely to be successful than bids at a lower price.
If two or more investors submit bids at the same price, then the time at which the bid was submitted becomes a factor. Bids submitted earlier in the auction process have priority and are therefore more likely to be successful than bids submitted later. Auto bids are prioritised based on the timing of the limit orders submitted into the order book pursuant to the auto bid.
You will never pay more than your bid price, but you may pay less, per share or per other financial product, than your bid price, if the final auction price is lower. For more information on the prioritisation of bids and how a ‘fair’ price is calculated, have a read of our page on marketplace mechanics.
How can I increase my chances of selling all my shares
You can maximise your chances of selling all your shares by submitting your best offer, meaning the lowest price you are prepared to sell for, per share or per other financial product, as early as possible in the auction.
Offers at a lower price have priority and are therefore more likely to be successful than offers at a higher price. The lowest offer you can submit is $0.01 per share or per other financial product.
If two or more investors submit offers at the same price, then the time at which the offer was submitted becomes a factor. Offers submitted earlier in the auction process have priority and are therefore more likely to be successful than offers submitted later. Auto offers are prioritised based on the timing of the limit orders submitted into the order book pursuant to the auto offer.
You will never receive a price, per share or per other financial product, less than your offer price, but you may receive more, per share or per other financial product, than your offer price, if the final auction price is higher. For more information on the prioritisation of offers and how a ‘fair’ price is calculated, have a read of our page on marketplace mechanics.