How To Use Pre-Open Session in Indian Stock Exchanges

While watching business news channels, many of us have observed that on market days, in the morning from 9 am to 9:15 am there is a pre-open session for NSE and BSE. Do you know that there is any relevance of this session? Are you aware that during this period, what kind of orders are placed and executed? If you have any sort of interest in stocks and you deal in stock market or you wish to deal in the market, then it is important for you to understand the relevance of pre-open session in equity market.

The fifteen minutes duration of pre-open session is divided into three 3 slots. First slot begins at 9 am and ends at 9:08 am. The duration of these 8 minutes is known as order collection period. During this time, one can place, modify or cancel orders. The second slot is for order matching and the duration is 4 minutes beginning 9:08 am to 9:12 am. The orders that were placed during order collection period are confirmed on the basis of the price identification method and hence no modifications and cancellations in orders are allowed during this period. This method is known by the names – equilibrium price determination and call auction. The remaining minutes duration, i.e. 9:12 am to 9:15 am is the buffer period. The period is mainly used for facilitating transition from the pre-open period to the normal market session.

Now, let us look at the working of the order matching or call auction session with different cases. Suppose, the previous day closing price of an ABC stock is Rs. 100.

Case 1:  In first case, say there was only one share price that has got highest trading quantity.

As evident from the table above, at Rs. 104 there is a maximum tradable quantity of 28,500. Therefore, this price is executed as the equilibrium price.

Case 2: Two Maximum Tradable Quantities at Different Share Prices

In this case two share prices Rs. 99 and Rs. 105 have maximum tradable quantities. However, the unmatched orders for Rs. 99 price are 9,000 and for Rs. 104 price are 8,800. Therefore, Rs. 104 will be executed as call-auction price.

Case 3: Two Maximum Tradable Quantities with Same Unmatched Number of Orders

In such case, the price which is closer to the previous day close is taken as equilibrium price. Since the previous day close price is Rs. 100, Rs. 99 will be executed as call-auction price.

Case 4: Two Maximum Tradable Quantities with Same Unmatched Number of Orders With Equidistant Share Price from the Previous Day Close Price

In such case, previous day close price, i.e. Rs. 100 is taken as equilibrium price.

All non-executed orders are forwarded to normal market session and the orders that are placed during pre-open session will be in the band of 20%, i.e. if the previous day close price is Rs. 100 for a share, then one can place an order for a price between Rs. 80 to Rs. 120.