The ASX Match Out

By Henry Jennings

Many members ask how the closing match out works. It can be confusing. The significance of the match out is liquidity. Many funds use the match out as it does provide a depth of liquidity and transparency that may not be present during trading hours in the stock. There are also what is known as ‘Market On Close’ Orders. MOC. These are orders that must be transacted at the close. Liquidity is key for these orders.

It is the same with the opening rotation, again there is a coalescence of liquidity at both the open and the close. The closing one means as well,that an investor gets set at a specific price and there is no slippage away from the closing price.Sometimes institutions like that. Especialy if they are index hugging. No slippage.

 Asked my good friend ChatGPT to put this explanation together. AI does have its uses. In the last I have referred to a Rivkin article but this is better.

The ASX closing match out, also known as the Closing Single Price Auction (CSPA), is a crucial process in the daily operation of the stock market. This mechanism determines the final prices at which stocks trade at the end of each trading day. Understanding how the closing match out works is essential for investors, traders, and financial professionals as it influences the final valuations of their holdings and provides insight into market sentiment.

 

What is the Closing Match Out?

• The closing match out is a period at the end of the trading day during which the ASX determines the closing price for each listed security. The primary objective is to find a single price that balances supply and demand, providing a fair and transparent closing price for the day's trading. This process involves aggregating all buy and sell orders to establish a final price that reflects the consensus of market participants.

 

Key Phases of the Closing Match Out

• The closing match out consists of several key phases, each playing a vital role in determining the closing prices:

 

Normal Trading Phase:

• Trading on the ASX occurs from 10:00 AM to 4:00 PM (Sydney time).
• During this period, buy and sell orders are continuously matched based on price and time priority.

 

Pre-CSPA Phase:

• This phase begins at 4:00 PM and lasts for five minutes.
• During this time, the market transitions from continuous trading to the CSPA.
• New orders can be placed, modified, or canceled, but no trades are executed.

 

Closing Single Price Auction (CSPA):

• Commences at 4:10 PM and typically lasts for two minutes.
• All unmatched buy and sell orders are pooled together.
• The ASX system calculates the price at which the maximum number of shares can be traded.
• The calculated price is the closing price for the day.

 

Post-CSPA Phase:

• Begins immediately after the CSPA and lasts for five minutes.
• Trades can occur at the closing price established during the CSPA.
• No new orders can be placed; only existing orders can be amended or cancelled.

 

How the Closing Price is Determined

• The closing price is determined through an algorithm that aims to maximize the number of shares traded. The process involves the following steps:

 

Order Aggregation:

• All buy and sell orders entered during the trading day, including those placed during the pre-CSPA phase, are aggregated.
• Orders are sorted by price, with buy orders listed from highest to lowest and sell orders from lowest to highest.

 

Price Calculation:

• The ASX system identifies the price at which the greatest volume of shares can be matched.
• If there are multiple prices with the same maximum volume, the price that minimizes the imbalance between buy and sell orders is chosen.

 

Final Match:

• The system executes trades at the determined closing price.
• Orders that cannot be matched at the closing price remain unfilled.

 

Importance of the Closing Match Out -The closing match out is significant for several reasons:

• Fair Pricing: It ensures a fair and transparent closing price that reflects the market's supply and demand dynamics.
• Benchmarking: The closing price serves as a benchmark for valuing portfolios, calculating index levels, and evaluating fund performance.
• Market Sentiment: The closing price provides insights into market sentiment and investor behaviour, as it reflects the consensus valuation at the end of the trading day.