On 4 April, 2005, the Danish equity market closed 10 minutes early. This was the debut day of the new closing auction between continuous trading and the close of the trading day.
An auction determines the closing price of the day on the basis of a number of trades instead of the price of just one trade. While Denmark has a long tradition of using average prices, the majority of European and Nordic exchanges uses auctions to close the equity markets and determine the closing price. The Nordic Exchange in Stockholm and Helsinki as well as Oslo Børs have already introduced such auctions. Their experience has been positive and as a natural step in creating the Nordic Exchange, the exchange in Copenhagen aligned its procedures in April, 2005 by introducing a closing auction as well. Previously, the last minutes of the trading day were normally characterised by increasing price volatility. Also, the spread – the difference between the best bid price and the best ask price – widened considerably towards the close of the day.
The result of the closing auction on the Danish equity market during the last minutes of the trading hours is an improved pricing. The spread has narrowed significantly. The positive impact of the introduction of the auction goes beyond the blue-chip shares and has had a beneficial effect on the other equity segments as well.
The closing auction is used frequently and to the same extent as on the other Nordic stock markets. The value of the trades in the auction corresponds to three per cent of total trading. Especially the foreign and the internet-based brokers are more active in the auction compared with their respective share of total trading.
Read the entire article ’Auctions make closing prices sharper’ in Focus no. 109 at the Exchange’s website www.omxgroup.com.
Questions to the author may be sent to the e-mail address copenhagen@omxgroup.com until 16 May 2006.
