Intraday
Efficiency. Discrete auctions Discrete auctions provide lower flexibility since market events can only be captured at the subsequent auction. Therefore, from a flexibility point of view, one would tend to prefer more frequent auctions. On the other hand, discrete auctions provide higher liquidity if they are not too frequent since they concentrate transactions reflecting all the events since the last session (that said, there are also academic studies that show the opposite3). Consequently, the frequency (and timing) of discrete auctions needs to be carefully chosen to take into account these two antagonist effects. Another fundamental difference between continuous trading and auctions resides in the way orders are submitted and matched. In continuous markets, bids are cleared at the price of submission (i.e. pay as bid), while in auctions, all bids for the same products are cleared at the same prices (i.e. pay as cleared). The consequence is that in auctions, traders are incentivized to submit orders at their own marginal costs, while in continuous markets, traders have to estimate the system marginal cost. Also, auction systems typically enable a better cross-matching of different products (e.g. matching a block of 4 hours with 4 hourly orders, or more complex combinations) which also enables auctions to accommodate for more complex products such as complex bid. Arguably, the fact that more sophisticated products are available in auctions increases the liquidity since their constraints can be more easily represented. In addition, it has been a long lasting debate whether intraday auctions can more efficiently price the cross-border transmission capacity. Indeed, the pricing of transmission capacity through implicit auctions (such as in day-ahead) has proved to be efficient. However, on the other side, some have questioned that - provided a certain frequency of auctions – it is unlikely that large parts of transmission capacity will be sold at once in such auctions (so either all is sold at day- ahead stage, or it is sold gradually in intraday timeframe – for a cost of zero since it is not scarce as long as some capacity remains – or there is no remaining capacity to sell). Discrete auctions need to be configured depending on the system characteristics and needs (among others to ensure increased liquidity). Changes in the system may affect the suitability of the timing of the intraday auctions. Continuous trading Continuous trading provides greater flexibility since ...
