08.29.2018

Shanghai SE to Adopt Call Auctions

A little bit of the US equity market structure is going to the Far East.

The Shanghai Stock Exchange will employ closing auctions to generate closing prices for equities, as first reported by the South China Morning Post, bringing it more in line with its Western and Eastern counterparts. The decision was based on the bourse’s desire to prevent price manipulation and provide investors with stable and accurate securities valuations.

A call auction will be conducted during the last three minutes of a trading session to determine final stock prices for the day beginning on August 20, and orders that are placed in the period cannot be retracted, the exchange said in a statement on its website. That will replace the current practice where closing prices are the weighted average for the final one-minute trade before the day’s last transaction.

The revision, which came after a two-month public consultation, will put the SSE on par with the smaller Shenzhen Stock Exchange that has already implemented the call auction session for two years. The Shanghai Exchange earlier said the call auction mechanism will be helpful to stabilize stock prices in the closing stage of trade.

In a call auction, trades are executed on the basis of an order-driven system. A single price is chosen that maximizes volume using data from price auctions that match buyers and sellers orders.

Hong Kong’s stock exchange has adopted a similar auction to generate closing prices since 2016.

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