Stock Price Formulation

How are prices determined when a special quote is indicated? (Part 2)

Update : Jan. 04, 2010

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Answer :

As explained in 'How are prices determined when a special quote is indicated? (Part 1)', Special quotes are used when there is a large price discrepancy, but as you will see, special quotes are also used to alleviate major imbalances in the order book, for example many more buy orders than sell orders. The use of special quotes notifies investors of the situation and encourages opposing orders into the order book to regain equilibrium.

Let's suppose that a large number of bids (buy orders) have been received prior to the setting of the opening price, and that the base price is 1, 200 yen.

Offer Price Bid According to the itayose method, all market orders must be executed in order to set the opening price. However, it is clear from this order book that there are not enough sell orders to fulfil all the buy orders.
100 M.O. 5,000
   
300 1,260 4,000
800 1,230 3,000
400 1, 200  

Offer Price Bid TSE indicates a bid special bid quote at 1,230 yen (at this price level the special quote renewal price interval is ±30 yen) to notify the public of an order imbalance.
100 M.O. 5,000
   
300 1,260 4,000
800 1,230S 3,000
400 1, 200  

Offer Price Bid The special quote is renewed upwards at 30yen intervals every 5 minutes until enough opposing orders enter the order book, and execution can take place. If an equilibrium cannot be achieved the special quote is renewed until it reaches the daily price limit.
100 M.O. 5,000
   
300 1,260S 4,000
800 1,230S 3,000
400 1, 200  

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