4.9 The Closing Auction: The Most Liquid Moment of the Trading Day

The closing auction is the most liquidity-rich phase of the trading day, as it consolidates all buy and sell orders submitted up to the market close into a single, bundled price-determination process. While orders are executed individually during continuous trading and available liquidity is spread across different venues, the closing auction creates an exceptionally deep order book that can absorb large volumes efficiently and with stability.
A key driver of this market depth is the behaviour of institutional investors. In particular, ETFs and index funds align their transactions with the official closing price, as it serves as a neutral, transparent and regulatorily accepted reference for valuations and portfolio adjustments. Consequently, a significant share of daily trading activity is intentionally channelled into the closing auction.
Modern trading algorithms further reinforce this effect. Strategies such as VWAP distribute their volume across the day but align with rising liquidity towards the end of trading. As a result, a substantial portion of the remaining volume is placed in the closing auction, boosting market depth even further.
Academic studies show that for European equities, price formation in the closing auction does not exhibit systematic distortions. SIX Swiss Exchange also employs specific mechanisms that enhance the stability of the auction process and mitigate non-informational price swings. This increases execution reliability and leads to a robust equilibrium price.
Due to the combination of pooled liquidity, high execution certainty, stable price formation and broad institutional participation, the closing auction consistently represents the most liquid moment of the entire trading day.