Guidance Note Closing Auction and - London Stock Exchange.doc by shenreng9qgrg132


									Guidance Note:
Closing Auction and Closing Price Dissemination - SETS Stocks
Following a review, the Exchange is making some changes to the closing auction process for SETS securities on 10th September 2001, relating to Price Monitoring Extensions
parameters and the length of the potential extension periods. This guidance note highlights the revised timings and details h ow the closing price will be determined where there is no
auction match because of a potential excessive price movement with inadequate volume or no matching orders.

              •       If auction matching occurs in the closing auction, then closing prices will be based on the closing auction price. If no execution occurs, the Volume
                      Weighted Average Price (“VWAP”) of the last ten minutes of continuous trading will be used. If no automatic trades occurred in the VWAP period, the
                      last automatically executed trade price will be used.
              •       Currently the exact time that closing prices are disseminated depends on whether auction execution occurs immediately (at approximately 16.35), or
                      after a Market Order and/or Price Monitoring Extension.
              •       Price Monitoring Extensions are triggered by movements away from the Reference Price. (VWAP or if no VWAP period trades, last AT).

                                                                         Possible scenarios (a-h)
                                                                             a)    No extensions
                                                                                                                                                                                           2 min Market
                                                                                  Market Order                                                                                             Order Extension
                                                                             b)    Extension

                       VWAP                       Auction call                      Price Monitoring                                                                                       5 min Price
                                                                             c)        Extension
                                                  Entry of Market
                                                  orders & Limit                  Market Order            Price Monitoring                                                                 Extension
                                                                             d)    Extension                 Extension
                                                  orders                                                                                                                                   5 min Second
                                                                                   Price Monitoring                  Market Order                                                          Price Monitoring
                                                                             e)       Extension                       Extension                                                            Extension
                                                                                   Price Monitoring                       2nd Price Monitoring                                             0-30 second
                                                                             f)       Extension                                Extension
                                                                                                                                                                                           random end
                                                                                   Price Monitoring                  Market Order                2nd Price Monitoring
                                                                             g)       Extension                       Extension                       Extension                            Volume Check
                                                                                                       Price Monitoring                          2nd Price Monitoring
                                                                             h) Market Order              Extension
                                                                                 Extension                                                            Extension                            Matching
                                                          5 min

                                                Closing auction
   16:20                                                                                                  Closing Prices Disseminated                                   16:49
   VWAP calculation                         16:30                   16:35 approx.                                                                                       Auction matching
   starts                                   Closing auction         Auction matching                                                                                    complete
                                            begins                  begins

The VWAP period (1) commences at 16:20 and lasts for a maximum of 10 minutes. The closing auction call (2) commences at the end of the VWAP period and lasts until approximately
16.35. The system then determines whether a matching price can be calculated for each SETS security. The above indicates t he possible scenarios where an extension may be invoked
depending on whether market orders are left unexecuted or if the potential auction matching price is outside the price monitoring tolerance. Up to 3 extensions are allowed, 1 Market Order
and 2 Price Monitoring extensions. Note that the second Price Monitoring Extension will be the final extension. If at the end of the auction call (including extens ions) the potential auction
matching price is still outside the price monitoring tolerance, then a volume check is performed, based on half the Normal Market Size of each security (or a minimum 2500 shares). If the
auction match volume is sufficient the auction matching price will form the closing price, otherwise the VWAP is utilised (if no trades occur in the VWAP period, the last AT will form the
closing price). Note that the Price Monitoring threshold, before an extension is invoked, is 3% (from Reference Price) for FTSE100 securities (SET1) and 5% for all other securities.

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