How opening and closing prices are calculated The opening and closing price is determined by a 4-step approach involving the use of conditional decision rules. There is a short period before Opening and Closing. During the periods, new orders may be entered, but they do not trade against each other. Because of this, the market may overlap with buy prices being higher than sell prices.
Maximum Executable Volume The first principle establishes the price(s) at which maximum volume will be executed. There are two steps involved in applying this principle:
Step 1 determines the Cumulative Buy and Sell quantities at each eligible price. The Cumulative Buy quantity increases as prices decrease, and conversely, the Cumulative Sell quantity increases as price increases.
Step 2 establishes the total tradeable volume at each eligible price step. The total tradeable volume at a price is the minimum of the Cumulative Buy and Cumulative Sell quantities at that price.
When there is no overlap. The algorithm will only be applied when an even or overlapping market exists. If the market does not meet these conditions before opening, the opening price is the price of the first trade executed when the market opens. If the market does not overlap before the Closing Single Price auction, the closing price is the price of the last trade executed before the market closed.
Minimum Surplus
To further narrow the choices for an auction price ASX uses this principle to determine the Minimum Surplus level. It establishes the eligible price levels at which the unfilled or unmatched quantity is a minimum. The quantity of shares left in the market at the auction price should always be the lowest possible. The Minimum Surplus at each price level is equal to Cumulative Buy Quantity - Cumulative Sell Quantity.
Market Pressure This step ascertains where the market pressure of the potential auction prices exists: on the buy or the sell side. A positive sign (+) indicates a surplus will be left on the buy side, demonstrating buy side pressure at the conclusion of the auction. A negative sign (-) indicates a surplus will remain on the sell side, demonstrating sell side pressure at the conclusion of the auction. If the market pressure is on the buy side, then this step uses the highest of the potential auction prices. If the market pressure is on the sell side, then it chooses the lowest of the potential auction prices.
Reference Price The reference price is the last on-market traded price. Where on-market trades have occurred on the current trading day, the reference price will be the price of the latest on-market trade executed on that day. If, during the current trading day, an on-market trade has not occurred, the reference price will be the official closing price of the previous trading day i.e. the price of last trade executed on the previous trading day. There are two parts to this step: Part 1: The first part is to narrow the options of potential auction prices to two within the entire range of possible auction prices as follows:
If the result of Step 3 is a combination of positive and negative Market Pressure, then the algorithm marks the two prices where the sign changes.
If the Minimum Surplus for all possible auction prices is zero, then the algorithm marks the highest and lowest prices within that range as the potential auction prices to be applied in this principle.
Part 2: The second part is determining the relationship between the reference price and the final auction price as follows:
If the reference price is equal to or greater than the higher of the two possible prices established in the first section of this principle, then the higher price becomes the auction price.
If the reference price is equal to or less than the lower of the two possible prices established in the first section of this principle, then the lower price becomes the auction price.
If the reference price lies between the two possible prices established in the first section of this principle, then the reference price itself becomes the auction price.
If a reference price does not exist, for example, in the cases of an Initial Public Offering, new listing or the first day of trading a security on a reconstructed basis, the auction price becomes the lower of the two potential auction prices established in the first section of this principle.
Auction Access and Price Manipulation It is incorrect to say that the auction is used to manipulate price. It is most commonly used to square the books for traders. Counter-intuitively, the auction also pricing certainty to market participants, enabling the capture of sentiment momentum within a chosen price band.
The auction is open to any investor who has access to for example, the numerous variants of IRESS offered by most online brokers. For investors with smaller portfolios, it might mean pay to play.
NEU Price at posting:
$23.96 Sentiment: Buy Disclosure: Held
(20min delay)