It’s 4PM on the ASX and your stocks are up. You’re comfortably in the green, you’re beating the index, and life is good. 4:10PM comes around and suddenly your whole portfolio violently shits itself and half your gains for the day vanish. It’s like when you’re at trivia and the host decides to make the final question worth 50,000 points. What’s the deal?
This is the ASX Closing Single Price Auction, officially known on r/ASX_Bets as “Barry.” So what happens is there’s a few things that happen at various times of the day on the ASX (note that I’m talking about the cash market), culminating in the kneecapping of your portfolio at 4:10PM. To be honest, I find it all a bit weird, but you have to remember that the ASX was formed in 1987 as an amalgamation of a bunch of state-based stock markets that existed since the late 1800s, so there’s weird antiquated pre-computer stuff that goes on (which I’m assuming also includes it now being 2021 and there’s still no way to stop receiving CHESS holding statements in the mail).
The timeline for the day’s events goes like this:
There’s no premarket trading in Australia. I think even if there was it’d be pretty crap – in the US when trading out-of-hours you run into a lot of liquidity problems and huge spreads, and given that Australia is minuscule by comparison… it’d be no fun. Anyway the gates open at 7AM and orders get loaded into the system. Nothing executes until open though.
It’s 10AM and we’re off and racing. Probably off a cliff into oblivion, but you never know, maybe it’s a green day. So for 10 minutes we’re now in the “opening phase” which is like a staggered start to trading. Any symbols starting with a number or A-B get opened for trading, then 2 minutes 15 seconds later (plus a random number of seconds between -15 and +15 because Reasons) stuff starting with C-F and so on every 2 minutes and 15 seconds. The last lot start trading around 10:09. Why? I don’t know, it seems pretty weird huh. You’d think they’d all kick off at once. What is the point of staggering? Maybe deep down in the guts of the ASX trade executions still happen on old 386 computers powered by caged hamsters- I really don’t know. Or it could be the whole system is so fragile and full of duct tape that any changes to how it works would make everything explode.
The order that trades get made is in price-time priority. This means that buy/sell orders that match up get executed immediately, but if there’s a bunch of buy/sell orders at the same price then whoever put their order in first is first in the queue for execution. Whatever the last sale price is at the end of all that ends up being the opening price for the day. If no trades happen, then the opening price is whatever the Barry price was the previous day.
10:10AM – 4PM: Normal Trading
A normal trading day. My shares tend to start off well, peak around 11:30AM, and then haemorrhage red until close. It’s a source of endless amusement.
4PM: pre-CSPA (pre-Barry)
At 4PM, execution of trades halts. You can still place, amend or cancel orders, but none execute… until Barry comes around.
4:10PM: Closing Single Price Auction (aka. Barry)
Here’s the point where 50% of my gains for the day vanish because everything sucks. Sometimes I am comfortably beating the index then Barry comes around and boom, way under. Other times I’ll be happily profitable then nope, I get to end the day losing money. On rare occasions the adjustments actually go in my favour but I’d say that only really happens maybe 10% of the time.
So at some point between 4:10PM and 4:11PM, Barry happens. This means that all the orders that were entered/modified in the 10 minutes since 4PM now execute in one hit, in the same kind of way that the market opening happened. And this results in the closing price for the day, which will be the price that the last trade executed at (if none happen, then it’ll be the price of the last trade prior to 4PM). If you’re graphing it, it’s generally a vertical line pointing down.
Why do we do this and not just use the last trade price at 4PM as the closing price? What is the point? I honestly have no idea. Everyone’s like “oh yeah, Barry,” but I’ve never found a decent explanation for what the actual purpose that it serves is. As far as I can tell, it is a weird thing that is unique to the ASX and only gets done because it’s always been done. Maybe it served a purpose back in the 1800s or before computers were mainstream?
After you’ve all lose a bunch of money, the market goes into the “Adjust” phase. It’s not really interesting – you can cancel or amend orders, but none are going to execute until the next day. Brokers can do aftermarket trading up until 5PM, but apparently it has to be done by telephone or something. I don’t know, seems weird and I’d imagine there’d be virtually nothing traded during this time but who knows.
After 5, it gets boring. Expired orders get deleted, and I assume this is when they use the fire extinguishers on all their server farm of 386s that have combusted during the day. All is quiet, then the routine repeats all over again tomorrow.