Stock Price Formulation

When does TSE broaden the daily price limits?

Update : Jan. 04, 2010

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Answer:

As explained in 'What are the 'daily price limits'?', all listed stocks on the TSE market have their own daily price limits, which are based on their previous day's closing prices.
Sometimes trading in a stock cannot be executed for several days due to these daily price limits although investors places orders, targeting prices beyond the price limits due to positive or negative information about the stock. In such cases, TSE broadens the stock's daily price limits in order to prompt smooth execution if certain conditions are met.
TSE disseminates information about adjustment of daily price limits in advance via TSE website (http://tse.or.jp), etc. to notify investors of it.

Doubled Daily Price Limit

TSE doubles the upper or lower daily price limits of a stock in the fourth trading day when one of the following has continued for 3 days.

  1. Close at the daily price limit (high or low), and, in addition, trading volume is 0 shares without conducting allocation of orders at the daily price limit
  2. Trading volume remains at 0 shares until the end of the afternoon session, a trade is executed at the daily price limit (high or low) at the close of the afternoon session, and, in addition, there are left over bids / offers at the daily price limit

Once the upper or lower daily price limit of a stock is doubled, TSE tightens the limit back to normal in the next trading day when a transaction other than one at the limit price is executed.
If no transaction is executed, or a transaction is executed only at the limit price, TSE continues to double the upper or lower daily price limit of the stock on the following trading day.

Abolition of Daily Price Limit

Generally, a stock price would go down to or around 1 yen, the minimum stock price, when a stock is assigned to trade on the delisting post because of bankruptcy, etc. However, it sometimes takes several days to reach 1 yen when the current price is relatively high, because the daily price limits prevents the price from going down excessively.
In such cases, TSE supervises the order-flow of the stock on the first trading day after assignment to the delisting post, and when TSE judges that the stock price would obviously go down, TSE broadens the lower limit price of the stock to 1 yen for the next trading day in order to prompt smooth execution.

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