Market Phases During The Day

On most mornings we receive a call from a subscriber asking what price XXX stock is going to open at. The question is brought about by some the quirky prices that appear on most stocks before the market open (some stocks are affected more than others).

To assist you in deciphering of what is happening, the various market phases are outlined.

Pre-open;

Before the 10 a.m. opening, brokers can enter orders in preparation for the market opening. This officially commences from 7 a.m. These orders are registered on SEATS and are queued according to price-time priority (better-priced orders trade first. If there is more than one order at the same price, the order that was placed first has priority) and will not trade until the market opens. Therefore the market may overlap with buy prices being higher than sell prices. This is where much of the confusion may occur as small volume 'bid' or 'ask' quotes may produce large spread variations at opening and constantly alter the 'matching' price prior to opening. Moreover, there are instances of volume attributed to stocks prior to opening. ASX Market Rules detail that the overnight overseas trades (e.g. News Corporation NWS shares) need to be reported before 9:45 am. This does not include NWS shares traded on the US bourse.

Opening;

The market opens at 10:00am, and is split into five opening groups (split alphabetically; A-B, C-F, G-M, N-R, S-Z) opening 2 minutes apart over a 10-minute period. The opening price for each stock is determined by a four-step formula at opening.

Normal trading occurs on SEATS through to 4pm. From there the market enters 'pre-open' phase for 15 minutes where trading stops so that brokers can enter, cancel and change orders before the market enters the next phase. 'Pre-open' is the term applied when any share is suspended from trading such as a major announcement to the ASX during the day. From 4 pm there are large variations in Bid and Ask prices with seemingly impossible combinations that will push the matching price prior to closing up and down.

Closing;

The 'Closing Single Price Auction' is when SEATS calculates the closing prices. It starts at 4.10pm and lasts for about a minute. This is the closing price that you will see on your data feed. There is often a large difference in the stock price at 4pm and the price displayed at 4.11pm. This can be frustrating for the home trader as the final closing prices can sometimes give a distorted view of the days trading due to the low volume needed to change the price.

Although SEATS trading has closed at this stage, until 5pm Brokers are permitted to 'late trade' amongst themselves (according to ASX rules). This is known as the Closing phase. Additionally, orders can be entered onto SEATS during this period but no electronic trading will occur. After 5pm, the market is 'after hours adjust' when Brokers can tidy up their orders and continue trading directly with other brokers up until 7pm theoretically.

After 7pm SEATS is available for enquiries only, this enquiry phase lasts until 7am when pre-open starts again.