Shanghai Stock Exchange to adopt call auction to determine equity prices at closing
The Shanghai Stock Exchange will apply a new mechanism to generate closing prices for equities on the mainland’s bigger bourse to suppress manipulation.
A call auction will be implemented in the last three minutes of trading to determine final stock prices for the day starting August 20, and orders that are placed in the period cannot be retracted, the exchange said in a statement on its website. That will replace the current practice where closing prices are the weighted average for the final one-minute trade before the day’s last transaction.
The revision, which came after a two-month public consultation, will put the Shanghai exchange on par with the smaller Shenzhen Stock Exchange that has already implemented the call auction session for two years. The Shanghai exchange earlier said the call auction mechanism will be helpful to stabilise stock prices in the closing stage of trade.
In a call auction, trades are executed on the basis of an order-driven system. A single price is chosen that maximises volume using data from price auctions that match buyers and sellers orders.
The mechanism helps to prevent speculators from deliberately ramping up closing prices to create false buying interest and entice new buyers to chase the share in following-day trade.
Chinese regulators have taken a raft of measures to curb volatility and manipulation since a market rout erased US$5 trillion in equity values three years ago. Swings in equity prices are now close to record-low levels thanks to intervention by state-linked funds and an aggressive approach by regulators to stamp out manipulation by imposing heavy fines.
Hong Kong’s stock exchange has adopted a similar auction to generate closing prices since 2016. The tender method that matches prices from the largest volume of input orders extends the trading day by between eight and 10 minutes. The city’s bourse readopted the auction session after scrapping it in 2009 because of controversy.