Gemini launches daily bitcoin auctions

Gemini Trust Company announced on Wednesday that it has launched "the first-ever daily bitcoin Auction." Currently, only BTC/USD trading pair is supported but the exchange plans to add ETH/USD and ETH/BTC trading pairs “in the coming weeks,” according to the announcement.

"If you were building a securities exchange today, an auction would be a core feature. We’ve built this trading mechanism to further Gemini’s mission of building a next-generation exchange that advances the future of bitcoin trading."
— – Tyler Winklevoss, Gemini CEO

Operating 24 hours a day, seven days a week, Gemini is a full reserve exchange, meaning trades must be pre-funded. Traditionally, Gemini offers four order types; Market, Limit, Immediate-or-Cancel, and Maker-or-Cancel. Starting on Wednesday, customers can also place Auction-only (AO) market order as well as AO limit order.

AO market orders could be filled at any price while AO limit orders could only be filled at the specified price or more favourably during the Auction. “All eligible orders will be filled at the final auction price at 4:00 p.m. ET.,” Gemini announced.

“the mechanics of this auction are very similar to the closing auction (or closing “cross”) on the major electronic U.S. stock exchanges.”
— – Gemini

The world’s largest stock exchange, the New York Stock Exchange (NYSE) has an auction market. The NYSE Acra is a stock and options exchange previously called Archipelago Exchange or ArcaEx. It merged with NYSE Group in a reverse takeover in 2006 and was renamed NYSE Arca.

NYSE Arca has three main types of single-price auctions; the Opening Auction, the Market Order Auction and the Closing Auction. “The Closing Auction is a single-price Dutch auction that matches buy and sell orders at a price that maximizes the amount of tradable stock,” the NYSE explains. Like Gemini, NYSE Arca’s closing Auction begins at 4:00  p.m. ET.

“Bitcoin trading is still incredibly inefficient because bitcoin exchanges are missing certain mechanisms that are commonplace in traditional financial marketplaces.”
— – Cameron Winklevoss, Gemini Co-Founder & President

The second largest stock exchange, NASDAQ, also facilitates auction orders. Its ‘Closing Cross’ is the first successful electronic auction in the U.S. It offers a highly transparent, accurate and orderly market close for NASDAQ securities.

The cross setsopening and closing prices, similar to Gemini and the NYSE, the Closing Cross is initiated at 4:00 pm ET. Nasdaq’s Crosses are widely used as benchmarks throughout the industry, including Russell Indexes, Standard & Poor’s and Dow Jones for NASDAQ-listed securities.

The largest exchange for exchange-traded funds (ETFs), Bats Exchange, is another example of an exchange with auctions. The Twin’s bitcoin exchange-traded fund, Winklevoss Bitcoin Trust, is waiting for the Securities and Exchange Commission’s (SEC’s) approval for listing on Bats Exchange. Prior to changing to Bats, the ETF was going to be listed on Nasdaq.

“We view the launch of an end-of-day auction as a significant step forward for Gemini and the bitcoin industry.”
— – Chris Concannon, Bats CEO

The exchange’s Auction Process provides electronic price discovery mechanisms to match orders in its listed securities at a single price. Bat’s Closing Auction match also occurs at 4:00 pm ET.

The auction market is also different from the over-the-counter (OTC) market. Buyers and sellers negotiate the terms of their trades privately so OTC investors usually have limited knowledge of trades being negotiated elsewhere in the market. Auction trades, on the other hand, do not involve any direct negotiations between individual buyers and sellers.

Key benefits of auctions are listed in the Gemini announcement. “Lower fees” is listed high on the list of benefits, since auction trades benefit from Gemini’s “liquidity-making fee discounts.” Effectively, they are eligible for up to a 15 bps (0.15%) rebate, the announcement explains, citing that “OTC trades that can cost upwards of 1–2% per trade.”

Auction trades settle immediately, unlike OTC trades that can require phone calls, emails, specialized paperwork, and risk during funds transfer. An Auction also provides “Mark-to-Market Benchmark Price” which is an official 4:00 p.m. ET end-of-day price for marking assets to market.

“We are confident that our Auction will bring you the benefits of over-the-counter (OTC) trading without the overhead, hassle, and lack of transparency of these archaic trading venues.”
— – Cameron Winklevoss, Gemini Co-Founder & President

Auction orders placed between 5:00 p.m. ET the prior day and 4:00 p.m ET on the day of the Auction are filled at the final auction price at 4:00 p.m. ET on the Auction day. “The final auction price of each Auction is determined by finding the price at which the greatest aggregate buy demand and aggregate sell demand from all participating orders can be filled,” the exchange announced.

Gemini Trust Company, LLC is a New York state limited liability trust company operating under New York Banking Law, regulated by the New York State Department of Financial Services (NYSDFS). This makes them a fiduciary and allows them to accept individual as well as institutional customers. In contrast, companies obtaining BitLicense would not have fiduciary powers.

In June, the company expanded into Canada and then the United Kingdom, initially with only bitcoin and ether trading. However, all three trading pairs were available since early this month in both countries. In August, the company expanded into Texas with bitcoin and ether trading.

Since launch, Gemini has been growing in trading volume. As of September 22, 2016, BraveNewCoin’s BTC/USD  24 hour marketplaces shows that Gemini is the largest bitcoin to dollar exchange by volume with a market share of 13.09 percent. The previously hackedBitfinex sits in at third with 12.79 percent market share.

BTC/USD  24 hour marketplaces – Thu, 22 Sep 2016 08:41:01 GMT

Following the launch announcement, Gemini tweeted later on Wednesday that they have successfully completed the first-ever daily BTC/USD auction. 2,104 BTC or approximately $1.25 million USD were traded at $593.67.