Stock Market Pre-Open Market Session: A session not well known to everyone

Stock Market Pre-Open Market Session: A session not well known to everyone

The regular trading hour in the cash market segment of the National Stock Exchange of India is fixed from 9.15am to 3.30pm. During the trading hour share prices react to the news related to business, economic and political news However, most of the news announcement happens after the trading hour. Therefore, investors could not react to the said news as there is no after-hours market in India. The investors can trade in the next trading day only. Many a time news developments after-market hour have extreme interpretations which different types of investors act in different direction when the trading starts in the next day. As a result, high level of volatility is observed in the opening of the market next day. It becomes difficult for the small investors to trade in that market conditions. The most important point is the normal price discovery process get which is fundamental function of the stock market gets disrupted. To control the volatility and make orderly discover of price in such volatile times a preopen session was introduced in October 2010. The pre-open session is for 15 minutes both for the NSE and BSE from 9am to 9.15am. The pre-open session is based on call auction driven market, while the normal session from 9.15am to 3.30pm is a order driven market. The pre-open call auction session operates in three phases. Phase I- Order collection period from 9am-9.08am for 8 minutes. Phase II- Order matching period from 9.08-9.12am for 4 minutes. In this four minute, orders are confirmed and matched. Finally, the opening price of the day is calculated. Phase III- Buffer session from 9.12am -9.15 am for 3 minutes. It facilitates the transition from pre-open market to normal market session. The equilibrium price is the price at which the maximum number of stocks can be traded based on the demand and supply quantity and the price. The orders are then matched at the equilibrium price and trades take place at this price during the pre-market timings in India. Example: The previous day closing price stock X is Rs.100 The pre-open market session price and quantity figures are presented in the following table. Stock Price Order Book Demand and Supply Quantity Maximum Tradable Quantity Unmatched Orders Buy Sell Demand Supply 102 1000 985 3400 985 985 2415 104 1275 1161 12600 21000 21000 -8400 105 5000 4300 9000 9500 9000 -500 97 4000 7500 5000 7250 5000 -2250 99* 2000 10000 25000 35000 25000 -10000 *Rs. 99 will be considered as equilibrium price of X because it corresponds to the highest tradable quantity of 25000. As far as trading in pre-open session is concerned, there is no restriction. But sometimes it is made inaccessible to the new traders by the brokers due to high level of volatility.
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