Pre-Open & Post Closing Markets – Indian market.

9:15 AM – The computer and mobile screens across India start throwing prices of derivatives traded in Indian stock markets.

3:30 PM- Entire market shuts off, & we’re done for the day.

Questions-

Why 9:08AM is an important time in our markets? Can i trade after 3:30 PM? Will those be considered a normal trade. What’s the process, how does trade take place, are these similar to normal markets? Where can i find about these trades? Are there any opportunities available?

Derivatives derive their prices from underlying cash market.This post is about what happens before 9:15 AM and after 3:30 PM in Cash Market.

Morning – Our market opens for trading at 9:00 AM in the morning in cash market only, not in derivatives market.In cash market the first session last for 7-8 minutes and is called Pre-Open Market. This is an important process for various reasons-

• Price Discovery – The first trade of the market is important number. And sometimes it could be a random number away from reality,in absence of Pre-Open discovered price.In order to arrive at the consensus price at the open, exchanges have started conducting Pre-Open markets.So that we have an opening price to start with and further build on that in the day.
• Reduced Volatility in the Opening – Before this Process was introduced, prices of some stocks at the open of markets used to display a lot of volatility due to some participants taking the price away from what was expected.However they used to come their natural price point once the demand-supply equilibrium established.For a very brief period the volatility was abnormal. And after the introduction of this markets now know what the opening price would be.
• Overnight effect of News – Thousands of stocks are listed in our market, and every other day we see some or the other news affecting a particular stock.Some news come when our markets are closed.To factor in the impact of news for opening price this is the best process.

Time –

• Total duration of Pre-Open market is 15 minutes.
• First 8 minutes are order collection period for exchanges.Users in this period can enter,modify and cancel their orders.Once this period is closed (after 9:08 AM)a user can not change the status of their orders till the normal market starts at 9:15 AM.
• Exchanges close the order collection between 9:07-9:08 AM, and this is random.In fact it has been observed that sometimes NSE had closed the session while at BSE the session is still on and vice-versa.However both are closed after 9:08AM.
• After 9:08, orders are matched
  • Buy limit Orders will be matched with sell limit orders.
  • Imbalance will be matched with Market orders.
  • Market orders will be matched with Market orders.
  • Unmatched orders will be carried over to normal market with their original time stamp
    –Limit orders as limit price
    –Market orders as Final Equilibrium price (Opening-price)
    –If Opening-Price is not discovered, market orders as previous day’s Closing-price
• Equilibrium Price(EP) or Opening Price(OP)
  • Limit Orders and Market orders ,both will be considered.
  • Indicative equilibrium price is the price at which maximum
    quantity can be matched
  • If there is more than one price point with same match-able quantity, then the Indicative equilibrium price will be the
    price at which the imbalance quantity is minimum
  • If there is more than one price point with same match-able quantity, and same imbalance quantity then the Indicative
    equilibrium price will be the price which is nearer to the previous day’s close price
  • If there are no limit orders for a security its EP will not get discovered in the Pre-open session
  • If there are only market orders (ATO) on both buy and sell sides, they shall be matched at previous day’s close price
  • If there is no price discovered in the Pre-open session,the price for the first trade in the normal market shall be the Opening-Price (OP)
• Type of orders allowed in the session
  • Limit price orders & Market price orders (ATO –At The Open)
• Not Allowed
  • Iceberg orders
  •  DQ (disclosed quantity) orders
  •  IOC (immediate or cancel) orders.
  • Orders Valid only for Pre-open session
• What does a participant get to know from exchange-
  • Market depth
  • Indicative Equilibrium price (EP) or Open price (OP) of a security
  • Total buy and sell quantity for a security
  • Total buy and sell quantity for market orders (ATO)
  • Indicative NIFTY index value
  • % change of EP or OP to previous day’s close price
  • NIFTY Market map & NIFTY Sparklines on nseindia.com

Post-Close Session –

• The Closing Session is held between 15.40 hrs and 16.00 hrs.
• It is available only in Normal Market Segment.
• Only market price orders are allowed.
• Trading will take place at single price i.e. close price of a security.
• Special Terms, Stop Loss and DQ orders are not allowed.
• Trades will be considered as Normal Market trades.
• The post close session facility is available to all the securities which are eligible for trading in Normal market in CM segment. However, if securities not traded in the normal market session will not be allowed to participate in the Closing Session.

This session is helpful for anyone who has been short in Capital Market segment during the day and forgot to square-off his position and he doesn’t have securities to deliver.After 3:30 PM one has chance to square off his/her short trades in closing session.If a news about an underlying comes after 3:30 PM and before 4:00 PM , then also one has choice to take delivery in the markets.

Closing price of the security is derived by Volume-weighated-average -price of last 30 minutes.Sometimes a price sensitive information is released in last 30 minutes of the trading time.If an underlying becomes volatile in last few minutes, the closing price and last traded price may show wide differences.

Opportunities –

• Yes bank came with result in 2nd half of the day and announced name of the new CEO. Last Trading Price of cash and derivatives market were around 223-226.However closing price of yes bank for the day was around 215.4(due to VWAP calculation). In post closing session the trades will be executed at closing price only.Next day open price was 225.
• In a highly price sensitive information(extremely good/bad results,government intervention,etc) one can participate in Pre-Open market to take advantage of the expected price moves.

Thanks

(Sources – nseindia.com)