I'm reading through Mind over Markets by Dalton and came up with a question.
He mentions something about opening call which I've never heard of before.
It seems like there's some designated time period before opening bell.
It also seems like by the description that it applies to floor trading.
The question is that we still have this opening call after most of floor or pit disappeared since electronic trading took over?
If it's still there where can I find more information about this?
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This post has been selected as an answer to the original posters question
When we are trading, we usually assume that price discovery is achieved via a continuous double auction (CDA), where market orders hit the order book, which then triggers a trade within the matching engine. The inconvenient of the CDA is that the liquidity is dispersed over the day, making it easier to manipulate prices.
Therefore a lot of exchanges have introduced call auctions to concentrate liquidity at single points. Typically the call auctions come at the open and at the close of the market, but on some exchanges the continuous double auction is also interrupted during the day for a call auction.
How does the opening call auction work?
Usually there is a pre-open period, during which brokers and other exchange members can enter their orders. Those orders typically need to be disclosed and are visible for other traders. Let us assume that the market opens at 9:00 AM and that there is a pre-open period from 8:30 AM to 9:00 AM. This allows brokers to enter their market and limit orders for the opening call auction. There may be a non-cancellation period from 8:55 to 9:00, during which orders can still be entered but no longer removed. Then at a few seconds prior to 9:00 AM the matching engine will work through the stored orders and come up with an opening price. This is done by following some complex matching rules, which are different for each exchange.
The continous double auction starts, after the orders that have been entered during the opening period have been matched. Orders that have not been crossed will remain in place for the trading period.
The opening call auction cannot be held in parallel with the continuous double auction. This means that for a market that runs 24 hours, the CDA would need to be interrupted, if you want to hold a call auction at the open of the regular trading hours.
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I have chosen EUREX as an example, because it is closed from 10:00 PM CET to 7:30 AM CET. Therefore it is not a 24-hour market, but has a real opening period in the morning, which lasts from 7:30 AM to 8:00 AM.
If you want to know, how the opening call auction is organized, then you need to look at the papers explaining the rules in place for the exchange. So let us have a look at EUREX. There is a paper called Conditions for Trading at EUREX Deutschland and EUREX Zürich (attached). All you have to do, is to look at section 1.3, which explains the details, here is an excerpt.
1.3 Procedure for Options and Futures Trading
The procedure for options and futures trading for each product admitted to trading is composed of the following periods:
Prior to the commencement or resumption of options and futures trading, orders and quotes may, until the time set by the Boards of Management of the Eurex Exchanges, be entered into the electronic data processing (“EDP”) system of the Eurex Exchanges, amended, deactivated or cancelled.
Options and futures trading begin with the determination of an opening price for each option series and each futures contract. The Opening Period comprises the Pre-Opening Period and the netting process. For the purpose of determining a particular opening price, additional orders and quotes may be entered, amended, deactivated or cancelled until a time established by the Boards of Management of the Eurex Exchanges; a preliminary opening price will be continuously displayed during this period (the ”Pre-Opening Period”). During the subsequent netting process, the greatest possible number of orders and quotes contained in the system shall be matched for the purpose of determining a final opening price of each option series and futures contract. The Eurex Exchanges do not guarantee the execution of any order or quote at such opening price. The Opening Period with respect to a product shall end as soon as the netting process has been completed for all option series and/or all futures contracts based on such product.
If no market orders exist for any option series or futures contracts and matching between limit orders or limit orders and quotes is not possible or if market orders exist, which are not executable, the Opening Period shall end without the determination of an opening price.
After the close of the Opening Period for a product, the relevant contracts will be traded on a continuous basis. For the determination of a daily closing price, it may be decided by the Boards of Management of the Eurex Exchanges that a closing auction shall take place for a future transaction admitted to trading pursuant to the Exchange Rules for Eurex Deutschland and Eurex Zürich. The closing auction serves the sole purpose of determining the final settlement price and shall not terminate the trading period of all products. Continuous trading can thus be continued after the closing auction. All orders and quotes entered during the trading period, which have not yet been executed at the time of the beginning of the closing auction shall – during the closing auction - remain in the order book unless it is not a matter of combined orders or combined quotes pursuant to section 3.4. All orders and quotes which have not yet been executed by the end of the closing auction shall also remain in the order book after the end of the closing auction, except for such orders and quotes which have solely been entered for the closing auction. During the trading period and in the closing auction, orders may be entered, amended, deactivated or cancelled by the Exchange Participants. During the netting process, on the basis of the limit and market orders as well as quotes in the system of the Eurex Exchanges, a daily closing price shall be determined in the closing auction, at which the greatest possible number of contracts in the respective product can be matched. The Eurex Exchanges do not guarantee the execution of any order or quote at such closing price.
If the potential closing price differs considerably from the reference price the Eurex Exchanges may break off the closing auction. The determination of the reference price as well as the determination whether the potential closing price differs considerably from the reference price shall be made according to the implementation regulations for the handling of erroneous entries at Eurex Deutschland and Eurex Zürich respectively applicable for each futures transaction. The closing auction with respect to a product shall end as soon as the netting process has been completed for all futures contracts based on such product. If no market orders exist for any futures contracts and matching between limit orders or limit orders and quotes is not possible or if market orders exist, which are not executable, the closing auction shall end without the determination of a closing price.
After the end of the Trading Period, the EDP system of the Eurex Exchanges will remain available to Exchange Participants for data entry and data request (the“Post-Trading Period”). The Post-Trading Period is divided into the Post-Trading Full Period and the Post-Trading Restricted Period which differ with respect to the technical access possibilities to the EDP system of the Eurex Exchanges available to the Exchange Participants. The Post-Trading Full Period shall start directly after terminating the Trading Period. During the Post-Trading Full Period data requests as well as data input are possible and admissible. Directly after terminating the Post-Trading Full Period, the Post-Trading Restricted Period shall start during which only data requests are possible and admissible.
Now sometimes you are lucky, and there is document published by the exchange which explains the market model in detail. Found one for EUREX.
The two documents - Trading Conditions and Market Model - are attached.
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CME has a continous double auction over most of the day, so typically there is no opening auction at the regular open.
Details are available in the Globex Reference Guide. Here is an excerpt:
The Trading Session
Trading sessions on the CME Globex platform meet customer needs around-the-world.
Electronic Trading Availability
Virtually all CME Group products tradeelectronically at some point during theday, but specific schedules vary according to product.Note: Special holiday trading hours are available at cmegroup.com/holiday. A current list of products on CME Globex and specific availability can be found online at cmegroup.com/trading_hours.
Trading Sessions and States
Trading on the CME Globex platform is generally available Sunday evening through late Friday afternoon. Exact trading hours vary by product. CME Globex sessions start in the afternoon or evening and mark the beginning of the next trading day (for example, orders entered during Sunday’s evening session are dated for and cleared on the following Monday).
All CME Globex markets cycle through the daily order entry states. Below are the pre-defined market states:
A predetermined time before the trading session opens when customers can begin entering, modifying and canceling orders for the next trading day, but no trades are executed.
A predetermined time before the session opens when customers can enter orders for the next trade date but cannot or modify orders, and no trades are executed.
The period of time when orders are sent and matched in real time, based on the product’s trading times.
A pre determined time when customers can only cancel orders. No trades are executed.
This CME Globex state change, cancels, day orders and advance the trade date.
6. Post Close/Pre Open (PCP)
This market state allows order placement, modification, and cancellation of GTC/ GTD orders only. No matching takes place and no action can be taken on non GTC/ GTD orders.
7. Maintenance Period
Occurring between 16:15 Central Time (CT) and 16:45 (CT) Monday through Thursday. [note: I think this information is not up-to-date].
For example, if you trade ES and look at index futures, you will find that there is a pre-opening on Sundays from 4:00 PM CT to 5:00 PM CT, period during which you may enter your orders. On weekdays there are two pre-opening periods, one is from 3:25 PM to 3:30 PM (the last 5 minutes of the 15 min break after the session close) and the other one is from 4:45 to 5:00 PM (the last 15 minutes of the Globex maintenance break).
However, I could not find any information on the no-cancel period at the end of the pre-opening.
Globex Reference Guide attached.
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