Stock Price Formulation

How are stock prices determined?

Update : Jan. 04, 2010

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Answer

Stock prices are determined by two methods, the Itayose and Zaraba methods. The Itayose method is mainly used to decide opening and closing prices; and the Zaraba method is used during continuous auction trading for the rest of the trading session.

Itayose

The Itayose method is used to determine prices in the following situations:

  1. The opening and closing prices for the morning and afternoon sessions.
  2. The initial price after resumption after a trading halt.
  3. The price when a special quote or a sequential trade quote is indicated. (Please see 'What is a 'special quote', and how does it work?' for an explanation of special quotes.)

The following table illustrates the order book at the start of the morning session. Orders are accepted from 08:00, but no transactions take place before the session opens at 09:00.
This means that there are many sell and buy orders at various prices. It is in such situations that the Itayose method is used to execute many orders at a single price.
(Please see 'What is the 'Itayose' method?' for a more detailed explanation.)

Offer (sell) Price Bid (buy)
A300 B300 Market orders B300 F100
A100 A300 C400 502  
D1,000 E500 F500 501 D900
G400 500 H800 I100 J100
  499 K1,000 A1,500 B500
C400 498 D100 E400

Note: Numerals - number of shares ordered
        Alphabet - securities company identifier

Zaraba

On the other hand, the Zaraba method is used in a continual process to match orders during the rest of the trading session when the order book is not locked or crossed with orders like in the example above. New orders are matched with those already on the order book.

Offer (sell) Price Bid (buy)
A100 A300 C400 502  
D1,000 E500 F500 501  
  500 H700 I100 J100
  499 K1,000 A1,500 B500
  498 D100 E400

Note: Numerals - number of shares ordered
        Alphabet - securities company identifier

TSE uses these two different methods to deal with different order book conditions.

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