It was the 15-minute ‘pre-open trading window’ that saved morning blues for the stock market today when it opened after RBI Governor Raghuram Rajan’s surprise weekend announcement saying no to a second term.
First introduced in 2010, pre-open call auction was extended to all shares in 2013 and this 15-minute window at the start of a trading session comes handy in containing excessive volatility, which was expected today as well.
Typically, in a call auction the buyers set a maximum price at which the shares can be bought while the sellers keep a minimum price for selling the scrips — without any trade actually being executed in this period. All orders need to be checked for margin sufficiency at order level in this period.
All shares trade within a band during this period, conducted between 9 am and 9.15 am, after which the normal trading session begins.
The first 8 minutes allow order entry, order modification and order cancellation, while the next 4 minutes are for order matching and trade confirmation, and the remaining 3-minute time is buffer period to facilitate the transition from pre-open session to the normal market.
In today’s pre-open trade, the stock market benchmark index Sensex touched a low of 26,438 points, down nearly 200 points from its previous close, but early morning buying orders helped limit the opening loss at 178 points.
Heavy buying thereafter lifted the index higher by 241.01 points to 26,866.92 at the end of the day.
Experts said that pre-open sessions are very useful in containing volatility in stocks, especially due to the overnight and weekend developments.
Marketmen also said it would have been difficult to check volatility had Rajan’s announcement come during trading hours.