Significance of Closing Auction?

[barjon]

Anyone done any work - or got a view - on whether price changes from market close (1630) to final close (1640) are significant.

For example: A share has been trading flat or very gently up during the day then drops with a relative bump during the auction period and finally closes at that lower level. Might that indicate that distribution has been going on and that there is still a supply overhang come 1630 which is wholly or partly resolved in the auction? Or does it mean nothing whatsover?

good trading

jon

 

[FetteredChinos]

now barjon, look what you have gone and done.. im gonna have to do some tinkering now..

just when i was looking fwd to a night in the pub with the ladies.....

 

[bracke]

barjon

What exactly is this 'auction period' that I've seen mentioned from time to time?

Seymour

Does this mean another one for 'Here's another one'. Surely we deserve some time off for good behavior !

Regards

bracke

 

[sulong]

barjon

What exactly is this 'auction period' that I've seen mentioned from time to time?
bracke

I've got the same question.

 

[barjon]

bracke/sulong

On the London market there is both an opening auction (which commences at 0750 and which is responsible for the opening gap* when the market opens at 0800. * Although there is no gap under LSE guidelines where yesterdays close = todays open.) and a closing auction after market close at 1630 until 1635 with then another five minutes to tidy it all up before the final closing prices are established. The following extract from LSE may (or may not!!) help.

Opening auction

During the auction call an indicative auction price and volume will be continuously disseminated for stocks with crossed book. This represents the single price and volume at which crossed orders will be executed, for the auction match to take place at that particular point in time. After the auction process ends the order book moves into Continuous Trading.

Closing auction

This follows the same model as the opening auction, but with a call period of 5 minutes, from 16:30 to 16:35.

An additional price monitoring extension (PME2) applies in the closing auction to ensure a high quality closing price. This results in 8 possible scenarios as set out in Figure 44. The closing auction usually generates the official closing price (refer to section on Determining the closing price.)

for more - go to LSE website if you dare

good trading

jon

 

[barjon]

now barjon, look what you have gone and done.. im gonna have to do some tinkering now..

just when i was looking fwd to a night in the pub with the ladies.....

well got to keep you busy and away from temptation

 

[bracke]

bracke/sulong

On the London market there is both an opening auction (which commences at 0750 and which is responsible for the opening gap* when the market opens at 0800. * Although there is no gap under LSE guidelines where yesterdays close = todays open.) and a closing auction after market close at 1630 until 1635 with then another five minutes to tidy it all up before the final closing prices are established. The following extract from LSE may (or may not!!) help.

Opening auction

During the auction call an indicative auction price and volume will be continuously disseminated for stocks with crossed book. This represents the single price and volume at which crossed orders will be executed, for the auction match to take place at that particular point in time. After the auction process ends the order book moves into Continuous Trading.

Closing auction

This follows the same model as the opening auction, but with a call period of 5 minutes, from 16:30 to 16:35.

An additional price monitoring extension (PME2) applies in the closing auction to ensure a high quality closing price. This results in 8 possible scenarios as set out in Figure 44. The closing auction usually generates the official closing price (refer to section on Determining the closing price.)

for more - go to LSE website if you dare

good trading

jon

barjon

Thank you for your reply but not for the LSE extracts, I do not speak lseese. I have no intention of visiting the LSE web site on the basis that if these are extracts I do not want to see the whole thing!

I must therefore request in my usual cajoling manner that you explain what they are in your succinct but friendly prose ( a bit of flattery often helps to smooth things along ).

In your explanation which I await with colonic anticipation I would be much obliged if you could say what actually occurs and why is it done.

I have searched on this site for an explanation but despite requests from others there appears to be no answer given. This is your opportunity to go down in history as the first person on this site to answer the question in full - what is the Auction Period. Your destiny awaits

Regards

bracke

 

[Tuffty]

bracke,

I think an auction period was used to overcome the problems of closing prices which were often based on low volume and therefore could be manipulated. It's my understanding that the auction process makes manipulation impossible (or at least difficult/expensive).

 

[FetteredChinos]

lots of orders fly around apres the 4.30 close.. people make paper planes out of the bad trades for the days.

when all the bit of paper are found.. the big adding machine tots up the numbers, sticks a finger in the wind and decides that the close price should be the 4.30 price plus or minus the number of puts he took on the 15th green the weekend before.

thats my understanding of things,

but then again, i could be mistaken.

ive heard that some people reckon he uses the tricky par-5 11th.

FC

 

[bracke]

Tuffty & Seymour

Thank you for your posts which although they attempt, in each our your own stlyles to explain the Auction Period, sadly fall well short of the green.

I must therefore continue my pursuit of an intelligible and straight forward explanation of the Auction Period.

Surely someone must know the true meaning.

Regards

bracke

 

[barjon]

They are just opportunities for the insiders to deal without us hobble-de-hoys spoiling the party. And,of course, to our disadvantage

Here's a bit more in explanation taken from advfn

The Opening Auction

Between 07.50 and a random time between 08.00 and 08.00.30, there will be called an auction period during which time, limit and market orders are entered and deleted on the order book. No order execution takes place during this period so it is possible that the order book will become crossed. This means that some buy and sell orders may be at the same price and some buy orders may be at higher prices than some sell orders.

At the end of the random start period, the order book is frozen temporarily and an order matching algorithm is run. This calculates the price at which the maximum volume of shares in each security can be traded. All orders that can be executed at this price will be filled automatically, subject to price and priorities. No additional orders can be added or deleted until the auction matching process has been completed.

The opening price for each stock will be either a 'UT' price or, in the event that there are no transactions resulting form the auction, then the first 'AT' trade will be used.


The Closing Auction

The VWAP period (1) commences at 16:20 and lasts for 10 minutes. The closing auction call (2) commences at 16:30 and lasts for five minutes, plus a random end time of up to 30 seconds. The system then determines whether a matching price can be calculated for each SETS security. Five scenarios are possible (3a-3e). Extensions may be invoked depending on whether market orders are left unexecuted or if the potential uncrossing price is outside the price monitoring tolerance (based upon the 10 minute VWAP reference price). Up to two extensions per security are allowed - one market order extension and one price monitoring extension. If at the end of the auction call (including extensions) the potential uncrossing price is still outside the price monitoring tolerance, then a volume check is performed, based on half the Normal Market Size of each security (or a minimum 2500 shares). If the auction match volume is sufficient the matching price will form the closing price, otherwise the VWAP, or if there are no trades in the VWAP period then the last AT forms the closing price.

And here's another http://www.itgeurope.com/research/whenisaclose1.pdf

Suffice to say that there is activity before the open which we simple souls cannot participate in and which often has a dramatic effect on the opening price. Similarly after the market close and, if we've understood it all, can we get back to my original question? Aside from the example I mentioned I seem to remember reading something about "window dressing" where the closing auction is used to gain an artificially high close with a good fall the next day as a consequence.

good trading (in market hours of course )

jon

 

[bracke]

barjon

Many thanks for your reply. The link you provided explained the auction very well in a language that I could understand albeit the actual auction rules are somewhat complicated.

It would appear that the auctions were introduced in 2000 but why. What is the purpose of them other than to put one over on us hoi polloi traders ? and who is allowed to take part in them.

I don't think I will ever see gaps again in the same way !

Regards

bracke

 

[theknifemac]

Hi Bracke

The auctions were introduced to stop market manipulation at the close. When the closing price was based on the last trade price at 4:30 it was fairly easy to manipulate the closing price - this might be done if you had an option position depending on the closing price etc. As it is now a VWAP in the last five minutes you would need to trade large size to manipulate the closing price. Anyone can trade in the auction if their trading platform supports it.

HTH

Stew

 

[bracke]

Hi Bracke

The auctions were introduced to stop market manipulation at the close. When the closing price was based on the last trade price at 4:30 it was fairly easy to manipulate the closing price - this might be done if you had an option position depending on the closing price etc. As it is now a VWAP in the last five minutes you would need to trade large size to manipulate the closing price. Anyone can trade in the auction if their trading platform supports it.

HTH

Stew

theknifemac

Many thanks for your explanations.
I now understand the logic behind the auctions

Regards

bracke

 

[Tuffty]

Is this market manipulation in the closing auction today (Friday 11th Feb 05).

The FTSE100 was quite happy up around 5040 to 5045 into the close, then all of a sudden the closing price after the auction is 5005. Looks very odd to me. Did some trader hit the wrong buttons (again)!!

 

[FetteredChinos]

that is weird.. i wasnt even looking at the FTSE as i was(am) sweating on a Dow short.


what the hell made the dow spike 50pts in 2 mins and the FTSE drop 40 pts??


is this all a dream?

FC

 

[Tuffty]

Looks like we've got corrected values now. FTSE 100 closed at 5044.2 according to Yahoo at 5.15pm.

May well be a dream...or gremlins.

My faith in the closing auction may be restored after all....

 

[FetteredChinos]

i wouldnt put the auction down as something to have faith in lol

on the other hand, i would be extremely grateful if you could start praying for the Dow to drop another 30 points..

am back to breakeven territory now, but i'd like a bit more of a profit to blow on loose cars and fast women over the weekend...

 

[mnxca]

LSE MOO/MOC info

Does anyone know if there is a central place to find Market on open and market on close order imbalances for the LSE?

The Nasdaq and Toronto Stock Exchange both provide this:

http://www.tsx.com/en/moc/Moc.html
https://noii.nasdaq.com/

However I cannot find this information anywhere for the LSE.

If someone knows where I can find this information I would very much appreciate it...

Thank you,

mnx

They are just opportunities for the insiders to deal without us hobble-de-hoys spoiling the party. And,of course, to our disadvantage

Here's a bit more in explanation taken from advfn

The Opening Auction

Between 07.50 and a random time between 08.00 and 08.00.30, there will be called an auction period during which time, limit and market orders are entered and deleted on the order book. No order execution takes place during this period so it is possible that the order book will become crossed. This means that some buy and sell orders may be at the same price and some buy orders may be at higher prices than some sell orders.

At the end of the random start period, the order book is frozen temporarily and an order matching algorithm is run. This calculates the price at which the maximum volume of shares in each security can be traded. All orders that can be executed at this price will be filled automatically, subject to price and priorities. No additional orders can be added or deleted until the auction matching process has been completed.

The opening price for each stock will be either a 'UT' price or, in the event that there are no transactions resulting form the auction, then the first 'AT' trade will be used.


The Closing Auction

The VWAP period (1) commences at 16:20 and lasts for 10 minutes. The closing auction call (2) commences at 16:30 and lasts for five minutes, plus a random end time of up to 30 seconds. The system then determines whether a matching price can be calculated for each SETS security. Five scenarios are possible (3a-3e). Extensions may be invoked depending on whether market orders are left unexecuted or if the potential uncrossing price is outside the price monitoring tolerance (based upon the 10 minute VWAP reference price). Up to two extensions per security are allowed - one market order extension and one price monitoring extension. If at the end of the auction call (including extensions) the potential uncrossing price is still outside the price monitoring tolerance, then a volume check is performed, based on half the Normal Market Size of each security (or a minimum 2500 shares). If the auction match volume is sufficient the matching price will form the closing price, otherwise the VWAP, or if there are no trades in the VWAP period then the last AT forms the closing price.

And here's another http://www.itgeurope.com/research/whenisaclose1.pdf

Suffice to say that there is activity before the open which we simple souls cannot participate in and which often has a dramatic effect on the opening price. Similarly after the market close and, if we've understood it all, can we get back to my original question? Aside from the example I mentioned I seem to remember reading something about "window dressing" where the closing auction is used to gain an artificially high close with a good fall the next day as a consequence.

good trading (in market hours of course )

jon