delderfield - U/T's20 Jan 2014 06:56
Copied from ADVFN
Overview
At the start and end of the trading day, and occasionally in the middle of one, a process known as an ‘auction’ takes place on shares traded on SETS or SETSmm.
Auctions
The opening auction normally lasts from about 07:50 to 08:00; the closing auction from about 16:30 to about 16:35. A 5-minute auction can also be triggered in the middle of a trading day if prices are moving very rapidly. I believe the purpose of these interday auctions is to slow things down a bit and get the share price to settle down at a stable “market” level: the opening and closing auctions are similarly intended to get stable “market” opening and closing prices. There are also auctions mid-morning on the third Friday of each month, used to get stable prices for option expiry purposes. All of these auctions can get extended by a few minutes for various reasons. In normal trading, orders are continuously coming in and being matched against each other. Each order is either an “aggressive” one that has to be dealt with at once, or a “persistent” order that can sit around waiting to be matched. The “order book” consists of all the current unmatched persistent orders – each one of which is either a sell or a buy and has a limit price, with all of the sell limit prices being higher than all of the buy limit prices (otherwise, a sell could be matched to a buy).
Order Types
Aggressive orders may or may not have a limit price, and may or may not be allowed to be partly satisfied – depending on the exact combination, they are called “at best”, “execute and eliminate” or “fill or kill” orders. An incoming aggressive order gets matched against the order book as far as possible within its constraints; any part of it that is not matched is then rejected. An incoming persistent order is matched against the order book similarly; any part of it that is not satisfied is added to the order book.
During an Auction
During an auction, this matching is suspended. Aggressive orders are not allowed to be entered and persistent orders are allowed to build up regardless of whether they could be matched. (Incidentally, I believe this is why you sometimes see things indicating that the “bid” price is higher than the “ask” price at the time of the closing auction: the “bid” price is the highest price of any persistent buy order, the “ask” price the lowest price of any persistent sell order.) In addition, unpriced persistent orders are temporarily allowed on to the order book – they’re known as “market orders”. They’re basically for people who are willing to trade at whatever the market price determined by the auction turns out to be.
End of an Auciton
Then at the end of the auction, the whole set of
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