Discrete auction on the exchange — principles of use

Discrete Auction (YES) is a special type of trading on the exchange using clearly defined rules at times of very high price volatility.

The main purpose of holding discrete auctions is to reduce the volatility on the stock exchange. When the price of securities is subject to emotions, stop-loss liquidations, then the price level that a stock or bond can reach is not defined. Plus, everything happens instantly.

Sometimes the stock exchange introduces a special trading regime on the principle of a discrete share. This is a special type of trading that reduces the volatility of the price of securities. An article on the mechanism of actions and rules for conducting such advertising campaigns.

1. What is a discrete auction in simple terms

For example, if a share costs 250 rubles and drops sharply by 230, 210, 190, then there will be almost no bids for buying around 150. There will be no one around 100. Thus, the price can fall down to 0 if the exchange does not take some pre-imposed restrictions.

The stock exchange has a price corridor for this. It is different for each stock and is usually around 20%. For illiquid stocks it can be 50%.

So, a discrete stock essentially suspends trading, makes it possible to reduce the intensity of emotions and place new limit orders for all participants. Thus, a sharp price change slows down.

The rules and procedure for conducting trading in the discrete auction mode are regulated by the “Regulations on Organized Trading Activities” approved by the Bank of Russia on October 17, 2014 No. 437-P.

A discrete stock allows you not to close trading, but only to reduce price pressure.

2. When are discrete auctions held on the Moscow Exchange

According to the rules of the exchange, a discrete auction takes effect only when one of the following conditions is met:

  1. The Moscow Exchange Index (IMOEX) deviates by more than 15% from the benchmark for 10 consecutive minutes. In this case, there is a discrete auction for all securities traded in the «Main Trades T+» mode;
  2. The change in the price of an individual security exceeded 20% within 10 minutes in the «Main trades T +» mode;

The price change can be either positive or negative.

3. How a discrete auction is conducted on the exchange

Auctions are held in series of 30 minutes, 3 ten-minute discrete auctions in each series. It can be done several times in series. If one series does not help, then the next one begins.

The second series of discrete auctions is held when a security deviates by ±20% from the current price at the start of the first series. Moreover, the time for this change should be 10 minutes.

During the DA period, limit orders (orders) are collected. The start price will be determined by the price of the application, where the maximum number of applications will be satisfied. Market orders are not accepted at this time.

Switching to the discrete auction mode is possible only during the trading session from 10:10 to 16:40.

The number of series of discrete auctions held is limited to two within one trading day.

Thus, it is possible to bring down the panic price change by prohibiting trading for several minutes and collecting orders. In the event of some super negative news, the price will continue to fall, despite the suspension of trading. Therefore, do not expect that the panic will definitely end.

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