“What happens in the ASX between 4pm and 4:10pm, as trading appears to take place but the market is closed?” – Richard

The Australian Securities Exchange (ASX) operates ordinary trading hours from 10am to 4pm Sydney time on weekdays.

However, you might notice that trading appears to continue for an additional 11 minutes until 4:11pm.

This period is called the ‘Closing Single Price Auction’ (CSPA), and it’s a crucial part of the trading day.

What is the Closing Single Price Auction (CSPA)?

The CSPA is a mechanism used to determine the official closing price for each listed security. It involves the following steps:

1. Order Entry (4:00pm – 4:10pm): During this phase, market participants can enter, amend, or cancel orders. However, no trades are executed.
2. Pre-Open (4:10pm – 4:11pm): This is a one-minute period where no orders can be entered, amended, or cancelled. The ASX system determines the single price that would result in the highest volume of trades.
3. Trade Match (4:11pm): At this point, all buy and sell orders that can be matched at the determined price are executed. This becomes the official closing price for the day.

Why is the CSPA Important?

The CSPA serves several key functions:

• Price Discovery: It helps establish a fair and transparent closing price for each security, based on supply and demand.
• Volume: It often sees a higher volume of trades, as many institutional investors (like mutual funds and pension funds) execute trades at the closing price.
• Market Efficiency: It reduces price manipulation by ensuring the closing price reflects the true market value.

Why Institutional Investors Love the CSPA:

Often, institutional investors will be tasked with selling big bundles of shares for their clients by the end of the day.

Usually, they don’t want to dump their order all at once, as this could tank the stock before they’re able to fully sell out – thus leading to reduced prices.

Instead, institutions will slowly ‘leak’ a sale into the market across multiple orders throughout the day.

The CSPA offers a great chance for institutional investors to offload any remaining parcels of their order before the day is done – which helps to clear their books and maintains for a ‘healthy bookend’ to the trading session (if this didn’t exist, their orders could spill over into the next day, which could create messiness).

This is why you’ll usually see elevated trading volume during the CSPA.

An Example:

Let’s consider a hypothetical scenario involving BHP Group (ASX: BHP).

• At 4:00pm, BHP’s last traded price might be $40.00.
• However, during the CSPA, a large volume of buy orders might come in at $40.10.

If this is the price that would result in the highest volume of trades, it becomes the official closing price, even though no actual trades occurred at $40.10 during the regular trading hours.