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.

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.