Opening Cross

Posted in Finance, Accounting and Economics Terms, Total Reads: 336

Definition: Opening Cross

Opening Cross is a mechanism used at the NASDAQ (National Association of Securities Dealers Automated Quotation system) to generate a single opening price reflecting the true demand and supply of each particular stock traded on the exchange. We know that stock prices are highly sensitive to material information. Thus, from the time the exchange closes on the previous trading day at 4 PM, there might be dissemination of a lot of information in the market regarding the company or the sector or the economy in general. All this information put together will act at the same time when the market opens on the next day. Hence to stabilise this effect, the Opening cross mechanism is put in place to resolve the supply demand mismatch of the stock.

How does it work?

Just two minutes prior to the opening time of NASDAQ (9.28 AM to 9.30 AM), the exchange collects and displays the information about the supply-demand of the stock i.e., buy vs sell interests and together with that it also publishes an indicative opening price.

This information is frequently updated during the two minutes where the exchange publishes the updated buy-sell interests on all the stocks first every 15 seconds and then for every 5 seconds. Thus this process allows investors across various levels – both big as well as small to access information that is open to everybody. Thus such a setup provides the same information to investors and is not biased to big investors who have insider information etc. and thus increases openness in information thus helping investors to invest their money more carefully thus increasing fairness and transparency.



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