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Q. |
How will the market opening price of a stock be determined during the Call Auction session? |
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A. |
The market opening price of a stock will be determined through a 4-step process as follows –
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Step 1: Sorting and Aggregating Orders at Different Price Points
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All limit orders in the order book will be organized in the following manner:
- Consider the limit order price points at and within the range of the highest buy
price and lowest sell price. Arrange the limit order price points in descending
order.
- Calculate the cumulative buy and sell quantity at each price point. Cumulative buy
quantity shall increase or remain constant as the price decreases. Cumulative sell
quantity shall decrease or remain constant as the price decreases.
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Cumulative market buy and sell orders will be added to each of the cumulative buy
and sell quantities at available price points.
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Step 2: Determining the Maximum Tradable Quantity
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The tradable quantity at an eligible price point is the minimum of the cumulative
buy quantity and cumulative sell quantity at that price point. The price point,
at which the tradable quantity is maximum, is considered the opening price. If there
is a single price point at which the quantity traded is maximum then that is the
opening price.
If there are multiple price points with the same traded quantity, we proceed to
the next step.
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Step 3: Establishing Order Imbalance
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The order imbalance is calculated as the difference between the cumulative buy quantity
and cumulative sell quantity at each eligible price point. If there is a single
volume maximizing price at which the absolute unfilled/unmatched quantity (order
imbalance) is minimum that price is the opening price.
If there is multiple volume maximizing prices at which the order imbalance is minimum,
then we proceed to the next step.
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Step 4: Comparing with the Previous Closing Price
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To arrive at the final price we choose the potential price (obtained from the previous
steps) which is closest to the previous closing price. This single price point is
chosen as final opening price at which all orders are executed. In case the previous
day’s closing price is the mid value of a pair of prices which are closest to it,
then the previous day’s closing price itself will be considered the market opening
price. In case of corporate actions, previous day’s closing price will be the adjusted
for the corporate action.
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