NASDAQ Closing Cross: Imbalances, Order Types, and Matching Questions
Summary
This discussion introduces how a closing auction combines the continuous market with orders submitted for the close. A worked timeline shows paired shares, imbalance direction and size, and reference prices changing as market-on-close, imbalance-only, and limit-on-close orders arrive. Two additional examples illustrate how a crossing price can be associated with the maximum executable quantity, even when some shares remain unmatched.
The examples help explain auction indicators and why incoming orders can alter the projected close, but the document is framed as a set of unresolved questions. It asks how order priority works when multiple limit-on-close orders are eligible, and how imbalance-only and market-on-close orders rank against one another and orders from the continuous book. It does not supply answers to those priority questions or fully specify Nasdaq’s matching rules. The material is therefore useful as an introduction to closing-auction mechanics, with the cited examples serving as illustrations rather than a complete exchange rulebook.
Key ideas
- A closing cross combines orders from the continuous book with orders designated for the auction.
- Auction indicators report paired quantity, imbalance, and reference prices as orders arrive.
- The crossing price is illustrated through the quantity that can be matched, even when some shares remain unfilled.
- The examples raise questions about priority among limit-on-close, imbalance-only, market-on-close, and continuous-book orders without resolving them.
Tags
Full text
# How is the continuous order and market book merged together at market close?
# How is the continuous order and market book merged together at market close?
This question is specifically about how NASDAQ merges the two order books at market close in order to match orders, but I am guessing the same concepts apply to other on close/opening auction markets.
A explanation and a simple example is found in the following faq: https://www.nasdaqtrader.com/content/productsservices/Trading/ClosingCrossfaq.pdf
Most of this example is also posted at: https://www.kaggle.com/competitions/optiver-trading-at-the-close/discussion/442669 which I replicate here
```
3:50 p.m.:
Paired Shares: 4,000
Imbalance side: B
Imbalance shares: 500
Current ref px: $10.00
Near: $0
Far: $0
3:55 p.m.:
Buy 500 shares MOC received
Paired Shares: 4,000
Imbalance side: B
Imbalance shares: 1,000
Current ref px: $10.15
Near: $10.25
Far: $10.50
3:56 p.m.-3:59 p.m.:
Sell 1,000 shares IO received at $9.95
Sell 1,000 shares LOC received at $10.10
Sell 1,000 shares LOC received at $10.00
Paired Shares: 5,000
Imbalance shares: 0
Imbalance side: N
Near: $10.00
Far: $10.00
4:00 p.m.:
Paired Shares: 5,000
Imbalance shares: 0
Imbalance side: N
Auction Trades at $10.00
```
Another two simple examples to illustrate the cross price for matches at close are provided at: https://www.kaggle.com/code/tomforbes/optiver-trading-at-the-close-introduction
These are illustrated by the two following diagrams
and
where the crossing price (assuming market closes at this state) are \$9 and \$8 respectively, since in the first case the maximum number of matches is 5 units to be sold (with 1 unit left unsold) and the second case the maximum number of matches is 4 units to be bought (3 units not bought).
None of these examples clearly cover cases where Imbalance Only (IO) orders or Market on Close (MOC) orders get matched, nor in fact is it clear to me how Limit on Close orders are matched.
Some of my questions are:
- Suppose in the example from the first diagram, all ask prices were limit at close orders. Then, which are the 5 units of the requested 6 sell units that get matched? Do orders get matched by price priority, or in order of when they were placed? If orders are always matched in the order of when they were placed do we just pretend that there were 6 units for sale at \$9 instead of 4 units at \$9 and 4 units at \$8.
- With what priority do IO and MOC orders, and orders from the continuous book get matched? E.g., continuing with the example from the first diagram, suppose that there was a IO buy order for 1 unit, and MOC buy order for 1 unit, and suppose that the Nasdaq BBO is \$9.25 x \$9.50. Then the IO buy order is priced at \$9.25 and presumably can be matched against the remaining 1 unit to be sold at \$9. Which of the IO and MOC orders gets matched?Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.