How Exchanges Uncross a Crossed Order Book at the Open
Summary
The document explains how an exchange can handle a crossed book at the market open, when buy orders are priced above sell orders. Rather than giving priority simply to the highest bid or earliest order, the described opening process evaluates candidate prices and selects the one at which the greatest quantity can trade. The example illustrates that calculation by adding the buy quantity willing to trade at each price and checking whether enough sell quantity is available to match it.
If several prices would execute the same maximum volume, the exchange may choose the price closest to a reference, such as the previous day’s last trade, adjusted for events like dividends. This is a general description rather than a universal rule: opening auction procedures and tie-breakers depend on the exchange. The discussion does not specify order allocation among participants once the auction price is set.
Key ideas
- A crossed pre-open book has buy prices above available sell prices.
- An opening auction can choose the price that allows the greatest volume to trade.
- The exchange evaluates cumulative eligible buying and selling quantity across candidate prices.
- When multiple prices produce the same maximum volume, a reference price may resolve the tie.
- Auction rules and order allocation details can vary by exchange.
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Full text
# What happens at market open when there is a reverse spread during preopen? # What happens at market open when there is a reverse spread during preopen? During pre-open When checking the depth of one particularly bullish stock I am following (NZE:XRO went up 200% this year and 12% yesterday) I saw that the BUYs were much higher than the ASKs by about 10%. What would happen at market open? Does the highest BUY get their trades in first (and at what price) OR whoever placed their order first (and at what price) Presumably some traders would cancel and re-place their order right before open. Some of them may be placing orders to influence the price with no intention of letting those orders actually trade. But it would be possible for there to be a reverse spread at market open. (Say some one thinks the bubble is going to burst and just wants out so placed the order just before market close and is on a flight so can't change that now, while the demand has increased overnight and some are willing to trade at a higher price and willing to have a premium BUY price to get in on the game before the price goes even higher) ## Answer by Seveyo (score 4, accepted) https://quant.stackexchange.com/a/9385 This is known as a 'crossed' book, the exchange will attempt to uncross the book at the price at which the maximum amount of volume can trade. In your example at the price of 42 there's only 3533 amount of buying quantity, and there are more than enough sellers to cover this. At a price of 40, there's now 3533+425 buying quantity willing to trade, and still enough sellers to cover. If we continue with this approach you get something like this: In this case, the maximum volume occurs at 38.50. If there are multiple prices (there can be 2 prices that are equally valid) that would cause the same volume to trade, they will pick the price that deviates the least from some kind of reference price (typically last traded from the day before, but might be adjusted due to dividends, etc)
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