2004issue C111
Reading auction signals to choose an open, a close, or a VWAP path
The cash-equity open, the cash-equity close, and a full-session volume-weighted average are three different executable paths. Read whether the venue is publishing a price-range estimate, leftover share size, or an all-day average, rather than treating every pre-open figure as an imbalance.
- Editorial: treat the cash-equity open, the cash-equity close, and a full-session volume-weighted average as three different executable paths, not as three names for the same print.
- On ordinary mornings the specialist message is an opening indication of the likely opening price range, generally posted when the projected open is more than about 35 cents from the prior close, not a share imbalance.
- Share-count opening imbalances are described as an expiration-day event. Unmatched market-on-close size is published at 3:40 p.m. Eastern time and refreshed at 3:50 p.m.
- A volume-weighted average price order is presented as an institutional alternative to working size through the session, targeting that day's VWAP, usually for a higher fee.
Three executable paths
The cash-equity open, the cash-equity close, and a full-session volume-weighted average are different ways to complete an order. A market-on-open order is marked to transact in the opening auction at that session's opening print. A market-on-close order is marked to transact in the closing auction at that session's closing print. A VWAP order is an instruction to receive that day's volume-weighted average price instead of working or auctioning a single block.
Market-on-open and market-on-close orders can be sent by any participant through exchange routing or a broker. The identity that appears is typically only the broker give-up.
What the open publishes
On ordinary mornings the specialist message is an opening indication, a specialist-posted estimate of the likely opening price range, not a count of unmatched shares. That indication is generally posted when the projected open is more than about 35 cents from the prior close.
Share-count opening imbalances are described as an expiration-day event. An opening imbalance is a published leftover share count on the buy or sell side before the open.
The opening indication is framed as a request for offsetting interest so leftover shares can be paired and the auction can clear at a more balanced price for both sides.
What the close publishes
Unmatched market-on-close size is published at 3:40 p.m. Eastern time and refreshed at 3:50 p.m. A closing imbalance is that unmatched market-on-close size after buy and sell close orders are paired.
The closing imbalance is also framed as a request for offsetting interest so leftover shares can be paired and the auction can clear at a more balanced price for both sides.
The session-long alternative
A volume-weighted average price order is presented as an institutional alternative to working size through the session, targeting that day's VWAP, usually for a higher fee.
Quote layers are not one montage
National best quotes, regional and electronic depth, and the listed-exchange open book are separate quote layers and are not combined into one montage.
The level-i quote is the national best bid and offer shown to the broad tape. The level-ii quote is deeper prices and sizes from regional venues and electronic networks, shown separately from the open book. The open book is the listed-exchange limit book with attached sizes, treated as a distinct montage from national and regional quotes.
Inside size on the national quote can hide a larger resting order a few cents away, including a smaller order that is stepping in front of that size.
How close a large order comes to the auction print
How close a large open or close order comes to the intended auction print depends on that day's supply and demand. The same block moves a thin name more than a liquid large-cap name.
All readings on this track · 10 readings
- 2003Listed auction accommodation and open-book execution
- 2004Reading auction signals to choose an open, a close, or a VWAP path
- 2006A leftover clock that licenses offset-only market-at-close
- 2007Carry-adjusted index premium for auction execution
- 2008Two clocks on a public small-cap membership reset
- 2008Opening gap limits and close imbalance orders
- 2010Closing auction snapshots, fair value and pivot levels
- 2012Listed auction imbalance and market-on-close execution
- 2013Taking liquidity to offset HFT queue priority
- 2014Sizing opening and closing auction orders to volume