RE: RNS22 May 2020 11:01
Here you are newby:
Price Monitoring Extensions
For anyone trading in smaller cap companies, price monitoring extensions can be an extremely common occurrence. But what are they? Why do they occur? And are they good or bad? Find out the answers to these questions and more with this article on price monitoring extensions.
What is the role of an auction?
Any discussion on price monitoring extensions must firstly begin by covering auctions. Auctions are small intervals during the regular trading day where the electronic order book is effectively frozen. During this time, orders are collected from the market – known as the Call Period – and the matching algorithm considers the orders that have been entered and calculates the price that the maximum amount of shares can be executed. The intention is to find the most popular and reliable price for a security.
At the end of this Call Period, orders that can be matched are executed in an event referred to as the uncrossing, which takes place within a randomised 30 seconds of the end of the Call Period. However, should the auction fail to generate a reliable price, then a price monitoring extension is generated.
What happens during a price monitoring extension?
Should the preceding auction fail to generate a price within a predetermined percentage above or below the reference price, which is the price just before the stock went into the auction, then a price monitoring extension RNS is automatically released to the market, and the Call Period is extended by another 5 minutes. This extra 5 minutes provides participants the chance to review the prices of the orders that have been entered and if appropriate add, delete or amend.
Should this additional period still fail to generate a reliable price, then a second price monitoring extension is released to the market, and the Call Period is extended by another 5 minutes. On this occasion, should the additional period also fail to generate a price within tolerance levels, then this price will be taken forward and the orders that can be matched will be executed in the uncrossing.
Why might the auction fail to generate an acceptable price?
One reason might be that the share has such a wide spread during that day of trading that the bid and ask price are far away from the mid-price. Given that the majority of AIM companies trade on the SETSqx trading system, where there is no maximum spread requirements, this will likely be the problem in a lot of instances.
Another reason for a price monitoring extenion could be the release of news that has a sudden and significant impact on the price that investors are willing to pay for the company’s shares.
https://aim-watch.com/project/price-monitoring-extensions-explained/
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