Insights/31 Mar 2023

The Nasdaq First North Auction Model – An Alternative Way of Tackling Liquidity Issues

Nasdaq Nordic announced on 29 March 2023 that they will introduce an auction model to support less liquid shares on Nasdaq First North Growth Market (“First North”). The new auction model aims to tackle liquidity issues that, according to Nasdaq, can be particularly harmful to retail investors.

Controversially, retail investors will most likely not understand the change and how liquidity issues may cause them harm. Even so, possible liquidity improvements should benefit most investors.

What is an auction model and how does it work?

The introduced auction model will be implemented in First North and the new rules will be effective starting from 18 January 2024. From that point onwards, the shares of the affected companies will be moved to a new auction segment in which trading will no longer be continuous but limited to five auctions per day: an opening auction, actions at 11.00, 13.00 and 15.00, and a closing auction. This model will pool the trades together similarly to what is currently happening in all Nasdaq listed shares in opening and closing auctions . The difference will be that there will be no trading between the auctions. If you miss the opening auction, the next chance will be at 11.00 (CET).

The trades will be matched using an equilibrium price, which means that trades will happen at the price that maximizes the number of shares at the time of the uncross . While this all may sound confusing, it is actually fairly simple, and it is not necessary for the investors to understand the mechanics to benefit from an improved liquidity.

Since the matched trades are pooled together and executed at the same price at the same time, it is more likely that trades will be matched at the price that reflects the most recent supply and demand. Consequently, the market price will be less prone to price fluctuations caused by single orders. The negative side is that the trading will no longer be continuous, and the trades will only match 5 times a day (which is the reason why we can expect improved liquidity during those times). So, less trading at a more reliable price level.

What can companies do to avoid being moved to the auction segment?

The introduced model will only affect companies that already have a really poor liquidity. Only companies with more than seven percent average spread for two consecutive quarters may be moved to the auction segment. Thus, it will not necessarily be a bad thing to have the company shares moved to such segment. Even so, there is a solution to avoid the move.

Nasdaq will not move the shares to the auction segment if the company hires a liquidity provider. A liquidity provider is a market broker or institution that provides other market participants with a pool of shares that buyers and sellers can trade with without having to find other individual traders. Simplified, a liquidity provider provides shareholders with an improved ability to convert their shares to cash and vice versa.

In conclusion, the segment move can be avoided by improving the liquidity of the share. According to Nasdaq, currently only a few companies on First North Sweden may need to consider liquidity providing to avoid being moved to the auction segment at the beginning of 2024.

Why is Nasdaq concerned about liquidity?

It is generally accepted that a higher liquidity improves price stability and trade execution. This will in turn drive down spreads and the cost of trading and increase the willingness of the investors to invest in certain asset. Overall, it may be easier and cheaper for companies to raise additional capital when the liquidity of the share increases. Investors are more likely to invest in assets that can be turned to cash when they need it. This may be part of the reason why some investors do not even consider investing in companies traded on First North markets in comparison to regulated marketplaces.

While it should be remembered that Nasdaq also benefits financially from the improved liquidity directly by revenue generated from each trade, it is more likely in this case that an improved liquidity causes less trading related issues and increases investor interest towards their marketplace, which is the most probable reason why Nasdaq is introducing this change. The change also provides companies that are not willing or able to acquire services of a liquidity provider a solution to improve liquidity.


In the financial world, as long as I can remember, there has been a discussion about trading times and whether the liquidity could be improved by reducing the time that the exchange is open each day. At the same time, the world is going the other way and the interest is to further extend the trading times.
Even now, unregulated exchanges, such as crypto exchanges, provide round-the-clock trading. Where there is enough liquidity, it might be possible to extend trading without sacrificing too much reliability. But the reality is that many small companies do not have enough interest to support extended trading, so the extension would come at the expense of liquidity. The First North auction segment introduced by Nasdaq may provide a good alternative solution to this issue by removing the element of continuous trading and providing pooled trading as an alternative.

If you have any questions about the subject or would like to discuss the matter in more detail, please contact the undersigned or your regular Borenius contact.

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Additional information

Juha Koponen


Helsinki, London, New York

Teo Virtanen

Senior Associate