Page 114 - DCOM507_STOCK_MARKET_OPERATIONS

Unit 5: Trading System in Stock Exchange

Order Cancellation for Disabled Member: The Exchange suspends a member from trading Notes
due to various reasons. In case a member is suspended from trading by the Exchange, all
pending orders in all books of the member are immediately cancelled by the system.
A message: “Order Number cancelled due to suspension” is displayed at the message
window screen at the trader workstation. Inquiry screens such as MBP, Market Watch and
trader specific screens such as Outstanding Orders, Activity Log etc. get updated
accordingly.

5.3.4 Order Matching

The buy and sell orders are matched on Book Type, Symbol, Series, Quantity and Price.

Pre-open Matching Priority

The opening price is determined based on the principle of demand supply mechanism. The
equilibrium price is the price at which the maximum volume is executable. In case more than
one price meets the said criteria, the equilibrium price is the price at which there is minimum
unmatched order quantity. In case more than one price has same minimum order unmatched
quantity, the equilibrium price is the price closest to the previous day’s closing price. In case the
previous day’s closing price is the mid-value of pair of prices which are closest to it, then the
previous day’s closing price itself will be taken as the equilibrium price. In case of corporate
action, previous day’s closing price is adjusted to the closing price or the base price. Both limit
and market orders are reckoned for computation of equilibrium price. The equilibrium price
determined in pre-open session is considered as open price for the day. In case if only market
orders exists both in the buy and sell side, then order is matched at previous days close price or
adjusted close price/base price. Previous day’s close or adjusted close price/base price is the
opening price. In case if no price is discovered in pre-open session, the price of first trade in the
normal market is the open price.

Matching Priority

The best sell order is the order with the lowest price and a best buy order is the order with the
highest price. The unmatched orders are queued in the system by the following priority:
1. By Price: A buy order with a higher price gets a higher priority and similarly, a sell order
with a lower price gets a higher priority. E.g., consider the following buy orders:
(a) 100 shares @ ` 35 at time 9:30 a.m.
(b) 500 shares @ ` 35.05 at time 9:43 a.m.
The second order price is greater than the first order price and therefore is the best
buy order.
2. By Time: If there is more than one order at the same price, the order entered earlier gets a
higher priority. E.g. consider the following sell orders:
(a) 200 shares @ ` 72.75 at time 9:30 a.m.
(b) 300 shares @ ` 72.75 at time 9:35 a.m.
Both orders have the same price but they were entered in the system at different time. The first
order was entered before the second order and therefore is the best sell order.
As and when valid orders are entered or received by the system, they are first numbered, time
stamped and then scanned for a potential match. This means that each order has a distinctive

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