The JSE building in Sandton. Photo: Elvira Wood
- A mad rush of trading takes place in the last ten minutes of the JSE's day.
- This is because of its closing auction, which represent up to 40% of the day's trading in some shares.
- The JSE says this part of normal trading.
Every day, more than R20 billion in shares change hands on the JSE. The bourse is open for a full eight-hour day from 09:00, but increasingly a lot of the action takes place in the last ten minutes.
Last week, Sasfin Securities deputy chairman David Shapiro, a trader with a career that spans half a century, noticed a "peculiar pattern" of trading, with 30% of trading going through in the JSE's closing auction.
What is a closing auction?
The JSE holds a closing auction from 16:50 to 17:00 every day.As part of the auction, traders put in orders to sell or buy shares.
At the end of each auction, the JSE system determines at what price most shares will trade and sets the closing price.
As many orders as possible are put through at that price – which could be higher or lower than the price you requested.
This means that if you put in an order to buy shares at R11.50 and the closing price is actually R11.40, you would get the shares at the cheaper (R11.40) price.
On average, between 15% to 18% of a day’s activity goes through the closing auction, however when indices are rebalanced or on days with big events, it could increase in the more liquid shares to up to 40%, says Valdene Reddy, head of equity and equity derivatives at the Johannesburg Stock Exchange.
Index-rebalancing is when companies are added or removed from a JSE index. Every quarter, for example, the Top 40 index will be changed to reflect the biggest forty companies on the JSE. Companies that have seen large share price losses may be dropped from the index, and overperformers will be included.
Reddy says that the JSE is a “very index-driven market”.
The spike in late trading is also because the US markets only open in the last trading hour of the JSE. (There’s a 7-hour time difference between Joburg and New York.).
“As such, there tends to be more activity and participants involved in the afternoon session and the closing auction ” says Reddy. "The mechanics of the closing auction is a normal part of daily operations."
Shapiro and other traders also complained that the closing indices and prices, which were usually released just after 17:00, are now only available later than usual.
In a notice to clients, the JSE explained this was due to changes to in its “circuit breakers”, introduced in December. If a share falls by more than 4%, for example, it triggers a break that allows traders more time to review their orders.
Following the JSE’s explanation, Shapiro says nothing sinister is going on: the implementation of the circuit breakers explains why the closing levels are delayed.
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