Starting from today, the stock exchanges have opened with a 15 minute pre-opening session for the 50 stocks in the NSE’s Nifty index – in order to arrive at an indicative equilibrium price point at the start of the trade.
The Bombay Stock Exchange and National Stock Exchange have introduced the pre-opening sessions starting from 9 AM for the securities forming constituents of the NSE Nifty and BSE Sensex, in a move to allow the overnight news to be suitably reflected in the opening prices.
Further, the market for other securities resumes from 9.15 AM and will close at the regular time of 3.30 PM on the bourses.
Under the old system, the open price of a security was based on the first price traded on the exchanges. Often, such opening rates could be manipulated by some freak trade fed into the system based on order placements at market prices on the opposite end.
However, with a makeover in the rules, now the orders are accumulated for the first seven minutes of the session, followed by a system driven random halt anytime between 7th and 8th minute. During the next 4-minutes window, trades get executed at a single price backed by appropriate order matching mechanism.
The pre-opening session will give an idea as to what the market is going to open like and can be perceived as a preview to the opening tick on the bourses which will reduce initial price swings.
A point to be noted over here is that only ‘Limit’ and ‘Market’ price orders will be allowed to be placed in the pre-opening session conducted to discover the market-determined opening price at which maximum quantity of orders can be matched. Orders that do not satisfy the margin requirement shall not be able to participate in the pre-open session.
In short, it would be akin to a movie-trailer before the real movie begins.