Market-on-Open, Market-on-Close and the Auction-Only Orders

Auction orders are written to a named auction and go no further. The rule cancels whatever quantity does not trade in the designated auction rather than resting it on the book, so an auction-only order can fill in part and have its balance cancelled.

What Is an Auction-Only Order?

The NYSE Arca equities order types rule defines an Auction-Only Order as a Limit or Market Order that is to be traded only within an auction, or routed under the exchange's routing rule.

The disposal instruction is part of the definition: any quantity of an Auction-Only Order that is not traded in the designated auction will be cancelled.

The rule then names five of them. Two run at the open or a halt, two run at the close, and one runs only at a halt.

Exam Tip: Gotchas

• An unfilled auction-only quantity is cancelled, not rested. The cancellation is written into the definition of the parent type, so it reaches all five of the orders below it.

How Do the Open Orders Differ From Each Other?

The Limit-on-Open Order and the Market-on-Open Order trade in the same two auctions, and the rule then attaches a different halt qualifier to each.

• Limit-on-Open Orders intended for a Trading Halt Auction are accepted only during trading halts, which may occur in any trading session.
• Market-on-Open Orders intended for a Trading Halt Auction are accepted only during trading halts that occur during the Core Trading Session.

The two closing orders carry no such qualifier. A Limit-on-Close Order is a Limit Order to be traded only during the Closing Auction, and a Market-on-Close Order is a Market Order to be traded only during the Closing Auction. The rule states nothing further about either, and a blank there is a fact about the rule rather than a gap to fill.

Exam Tip: Gotchas

• The two open orders are not symmetric on halts. A Limit-on-Open Order reaches a Trading Halt Auction in any trading session; a Market-on-Open Order reaches one only where the halt occurs during the Core Trading Session.
• The closing pair takes no halt branch at all. Both are written to the Closing Auction alone, so a Trading Halt Auction fact pattern is testing the open orders or the Imbalance Offset Order.

What Makes an Imbalance Offset Order Participate?

The Imbalance Offset Order is a Limit Order to buy (sell) that is to be traded only in a Trading Halt Auction. It is accepted only during a halt or pause, including any extensions.

Acceptance is not participation. The rule sets two conditions, and both must hold, before the order takes part in the auction.

1. There is an imbalance in the security on the opposite side of the market from the Imbalance Offset Order, after taking into account all other orders eligible to trade at the Indicative Match Price; and
2. The limit price of the order to buy (sell) is at or above (below) the Indicative Match Price.

Where both hold, the working price of the order is adjusted to equal the Indicative Match Price, provided that working price will not be higher (lower) than its limit price.

An Imbalance Offset Order that participates in a Trading Halt Auction is ranked in time priority among Imbalance Offset Orders after all other orders eligible to participate in the auction have been allocated.

Exam Tip: Gotchas

• The imbalance must sit on the opposite side, measured after everything else is counted. The test runs on the imbalance that remains once all other orders eligible at the Indicative Match Price are taken into account.
• The order is allocated last among the auction's orders. It ranks in time priority against other Imbalance Offset Orders only after every other eligible order has been allocated, so it fills the gap rather than competing for the auction price.

What Do the Options Rules Provide for the Open and the Close?

Both NYSE options rules define a single auction type, the Opening Only Order: a Market Order or Limit Order which is to be executed in whole or in part during the opening auction of an options series or not at all.

The two rules part company on the disposal sentence. The Arca options rule adds that any portion not so executed is to be treated as cancelled. The NYSE American rule stops at "or not at all" and prints no disposal sentence.

Neither NYSE options order-types rule defines a Market-on-Close Order or a Limit-on-Close Order. Cboe's rulebook does define Limit-on-Close and Market-on-Close designations, and they are covered in the unit on options trading.

Both options rules also make ordinary Market Orders entered before the opening of trading eligible for trading during the Opening Auction Process, which is a separate route into the open from the Opening Only Order.

Exam Tip: Gotchas

• Neither NYSE options order-types rule has a closing order. Both name only the Opening Only Order, and Cboe's own Limit-on-Close and Market-on-Close designations are covered in the unit on options trading.
• An ordinary options Market Order can reach the opening auction. Entering it before the opening of trading makes it eligible, so the Opening Only Order is not the only way in.

What Should You Check on Exam Day?

• Confirm the auction named in the fact pattern. Open, close and halt each have their own order types, and an order written for one does not trade in another.
• On a halt question, separate the two open orders. Any trading session for Limit-on-Open, Core Trading Session only for Market-on-Open.
• For an Imbalance Offset Order, test both conditions: an opposite-side imbalance after all other eligible orders are counted, and a limit price at or beyond the Indicative Match Price.
• Remember what happens to the remainder. Any auction-only quantity not traded in its designated auction is cancelled.
• In options, check whether the order is an Opening Only Order or an ordinary Market Order entered before the opening, since both can reach the auction.