Stock Price Formulation
How are closing auctions at the limit price processed? (Part 1)
Update : Jan. 04, 2010
Answer:
During closing auctions at the limit price, shares are executed as follows:
1. The table below is a summary of the situation at the afternoon closing auction. The current price, a bid SQ, is 500yen. Execution cannot take place because there are insufficient sell orders to match the market buy orders.
| Offers (sell) | Price | Bids (buy) |
|
700 (total of all offers) |
Market Order |
1,000 (Trading Participants A, B, C & D) |
|
700 (total of all offers) |
500 S [limit price] |
400 (Trading Participants A and E) |
|
700 (total of all offers) |
499 |
2. So TSE initiates a closing auction at the limit price. This means that all market orders are treated as limit orders at the limit price, and added to the limit orders. This gives us 5 Trading Participants with bids for 1,400 shares at 500 yen.
| Offer | Price | Bid |
|
700 (total of all offers) |
Market Order | |
|
700 (total of all offers) |
500 S [limit price] |
1,400 (400+1,000) (Trading Participants A, B, C, D & E) |
|
700 (total of all offers) |
499 |
This means that in order to execute, at least 100 shares are required from the offer side of the order book. In this case there are 700 shares available so this is not a problem, so 700 shares are executed and the closing price is determined as 500 yen.
If there are insufficient shares (no orders from the offer side) to meet this requirement, trading will close without a closing executed price.