medium · Market Microstructure mmf-core
At 3:50 PM, the NYSE publishes a closing imbalance of 500,000 shares to buy with an indicative clearing price of $42.50, while the last trade was $42.00.
If a trader provides liquidity by selling into the auction at $42.48, what is the primary risk they are assuming?
- Adverse selection risk that the imbalance reflects permanent fundamental information.
- Execution risk that the seller's order goes unfilled at the auction close.
- Reg NMS risk that the trade is 'traded-through' by a faster dark pool.
- Inventory risk that the dealer cannot hedge the position using index futures contracts.
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