UK market at close - where does liquidity really lie?

First published by TabbFORUM

By Anantya Bhatnagar, Quantitative Analyst, BMLL

In UK markets, trading activity at the close increased significantly in 2025. Closing auction volumes as a proportion of total lit trading rose from 33% to 42% for UK equities. But even though the primary listing exchange is the single source of truth for the closing price, up to 20% of trading activity at the close happens away from the primary, as competing venues like Multilateral Trading Facilities (MTFs) and Systematic Internalisers (SIs) provide liquidity pools that cannot be overlooked.

As a result, having a clear, accurate picture of how and where close-price liquidity is being traded will ensure that participants do not miss untapped liquidity in some areas of the market, while risking unfilled orders in others. So, let’s take a closer look at the UK market at close.

Why is the closing price of a security so important?

Trading activity in the financial markets makes use of the closing price heavily as a benchmark. From liquidity sourcing to clearing and marking positions to market, the closing price is referenced ubiquitously. Trading algorithms and smart order routers (SORs) are often used specifically to target the close. Market participants are increasingly asking what the distribution of this liquidity looks like across trading venues/mechanisms and how it can be sourced optimally.

Fragmentation of liquidity at the close

The primary auction is not the only means of trading at the close price. MTFs also run closing mechanisms, such as alternative uncrosses or ‘Market at Close’ (MaC) phases, which guarantee fills at the price set by the primary closing auction. In addition, SIs run similar MaC or ‘Trading At Last’ (TAL) mechanisms of their own, where trading participants can receive fills at the same reference closing price. The natural question then is, as a trading participant looking to maximise my fill at the close price, where does liquidity really lie? How should I optimise my algorithm to target the maximum addressable volume?

Looking at UK stocks, the total notional traded in the primary closing auction has increased from 43 bn USD in January 2025 to 57 bn USD in December. The dip in share of closing auction trading in April corresponds to the market’s reaction to the US ‘Liberation Day’ tariffs, when trading would have moved intraday. While we use the UK as an example in this article, this analysis could be extended to other countries where we find fragmentation in close liquidity.

Figure 1 - Closing auction volume in relation to overall lit trading

How do we understand trends in close-price liquidity across closing mechanisms? A naive approach would be to assume all trades (irrespective of the trade price) executed within a short period after the primary closing auction (say, 10 minutes) to be representative of closing activity. This is shown in Figure 2.

Figure 2 - Distribution of all trades within the first 10 minutes after the primary closing auction

We see that only about 65-70% of UK ‘close-like’ volume appears to reside in the primary auction. About 7% can be found in TAL or MaC mechanisms on exchanges, while 10-15% could be found on SIs and 5-7% trades Over-The-Counter (OTC). Somewhat surprisingly, this view also shows that about 5% may be found as Off Book On Exchange trades, but is this really the case?

As we have discussed before, the majority of Off Book On Exchange trading that is reported in the minutes after the primary close is mainly composed of non-price forming trades, and is therefore non-addressable for market participants.

If we refine our approach to look at trades within the same window, but that occurred specifically at the closing price and were price-forming (i.e. addressable), we obtain the picture in Figure 3.

Figure 3 - Distribution of addressable trades executed at the closing price and within the first 10 minutes after the primary closing auction

We can immediately observe a few differences against Figure 2. Firstly, the share traded in the primary auction has risen significantly to about 75-80%. The alternative exchange close and SI proportions remain at about 7-8% and 10-15% respectively, but the big difference is the share of volume traded OTC and Off Book On Exchange. The OTC share has reduced to under 5% (in most months) and the Off Book On Exchange section has become negligible. The upshot of this is that trading participants may find untapped liquidity in some areas of the market while risking unfilled orders in others. Looking at a clear detailed picture of the market is hence essential to ensuring optimised fills and best execution.

What does this look like at a more granular level?

In the context of the UK market, we can examine liquidity at a more detailed and granular level. The FIX MMT standard includes a flag denoting Benchmark Transactions Executed at the Market Closing Price (Benchmark Indicator ‘CLSE’), in addition to the standard flag that identifies At Market Close trading (Trading Mode ‘AC’). If we now look at volume from the primary auction, alternative exchange closing mechanisms and trades tagged with either one of these two flags (while maintaining the previous restrictions on addressability and trade price but relaxing the restriction on time window) we find the distribution in Figure 4.

Figure 4 - Distribution of trades from exchange closing activity or trades tagged with the ‘AC’/’CLSE’ flags.

Now we see that the share occupied by the primary closing auction is generally upwards of 80%, alternative exchange mechanisms account for about 8% and SIs hold about 10-12%. Meanwhile, the Off Book On Exchange section has all but disappeared, which only serves to illustrate our earlier point even further - the probability of filling at the close price through an Off Book On Exchange mechanism is very low and introduces real opportunity cost. However, only sending orders to the primary auction will also mean that participants are not maximising the potential of capturing close price liquidity given availability across other trading venues and mechanisms.

Given the significant refinement already shown from Figure 2 to Figure 3, we can perhaps comment on the differences with Figure 4. In particular, we see that the SI and OTC sections appear smaller in Figure 4 than in Figure 3, which suggests that not all price-forming SI/OTC trades occurring at the close price appear to be tagged with the ‘CLSE’ flag. In the context of FIX’s recent recommendation to mandate this flag for the EU as well, we can see how the impact of this flag would be material to clearly identifying trades that use the close price as a reference, and hence on the resulting liquidity distribution profiles.

Understanding liquidity distribution at the close is crucial

The closing price plays a pivotal role in market structure, and particularly in the design of trading algorithms. Understanding the true distribution of closing-price trades in the context of UK/European market structure is hence vital to the majority of market participants. BMLL’s normalised market data products incorporate MMT flags into standardised classifications. These allow for easily scalable solutions to questions in liquidity sourcing, best execution and market impact that translate in the trading landscape to material dollar value.

Leveraging high quality historical market data and analytics is critical to refining trading strategies and achieving optimal execution in closing-price trading.