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What are Indicative Equilibrium Price(IEP) and Indicative Equilibrium Volume(IEV)? How are they determined?
An IEP is calculated during the POS and serves as the market opening price for the corresponding security. An IEP will only be calculated if the highest bid price of the buy at-auction limit orders is equal to or higher than the lowest ask price of the sell at-auction limit orders. If more than one price satisfies this criterion, the IEP shall be calculated according to the following rules:
- the IEP shall be one of the bid prices or ask prices which falls within the range of the highest bid price of the buy at-auction limit orders and the lowest ask price of the sell at-auction limit orders (inclusive of both prices) at which the aggregate size of the trades to be concluded based on the methodology specified in the Rules of the Exchange is maximised;
- if more than one price satisfies this rule , the IEP will be the price at which the normal order imbalance is the lowest. For these purposes, normal order imbalance is defined as the difference between the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than certain price and the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than the same price;
- if more than one price satisfies this rule, the IEP shall be-
- the highest of such prices if in relation to each and every of such prices, the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than that price is greater than the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than that price; or
- the lowest of such prices if in relation to each and every of such prices, the aggregate size of the buy at-auction orders and the buy at-auction limit orders with bid prices at or better than that price is smaller than the aggregate size of the sell at-auction orders and the sell at-auction limit orders with ask prices at or better than that price;
- if more than one price satisfies this rule, the IEP will be the price closest to the previous closing price. If two prices are equidistant from the previous closing price, the IEP will be the higher of the two prices. However, if the previous closing price is not available, the IEP shall be the highest of these prices.
If no IEP is calculated, no order will be matched during the order matching period of the POS. This can occur when there are only at-auction orders on both sides, or only at-auction limit orders on one side and at-auction orders on the other side, or at-auction limit orders on both sides but the highest bid price of the buy at-auction limit orders is lower than the lowest ask price of the sell at-auction limit orders.
IEV is the number of shares that can be matched at the IEP.
The following examples illustrates the calculation of IEP and order matching mechanism during the POS.
Example 1
The table below shows all orders in the order book at the end of the Random Matching Period, sorted in the sequence of matching priority:
BID | ASK | ||||||
|---|---|---|---|---|---|---|---|
| Broker | Time | Volume | Price | Price | Volume | Time | Broker |
| A | 09:05 | 2,000 | At-auction | 31.90 | 2,000 | 09:01 | P |
| B | 09:00 | 1,000 | 32.00 | 31.90 | 8,000 | 09:10 | Q |
| C | 09:11 | 8,000 | 32.00 | 32.00 | 10,000 | 09:05 | M |
| D | 09:02 | 6,000 | 31.90 | 32.00 | 4,000 | 09:13 | N |
| E | 09:10 | 3,000 | 31.90 | 32.00 | 2,000 | 09:14 | O |
| F | 09:14 | 2,000 | 31.90 | 32.10 | 6,000 | 09:12 | K |
| G | 09:13 | 2,000 | 31.80 | 32.10 | 2,000 | 09:13 | L |
| 32.20 | 4,000 | 09:01 | H | ||||
| 32.20 | 2,000 | 09:08 | I | ||||
| 32.20 | 1,000 | 09:12 | J |
In general, the IEP shall be one of the bid prices or ask prices which falls at or within the range of the Highest Bid Price and the Lowest Ask Price and results in maximum matched shares. Therefore, the IEP is determined to be $32.00.
Possible IEP | Acc. Bid Qty | Acc. Ask Qty | Matched Shares |
|---|---|---|---|
| 32.00 | 11,000 | 26,000 | 11,000 |
| 31.90 | 22,000 | 10,000 | 10,000 |
After the end of the Random Matching Period, the following trades are generated.
Buying Broker | Trades Generated | Selling Broker |
|---|---|---|
| A | 2,000@32.00 | P |
| B | 1,000@32.00 | Q |
| C | 7,000@32.00 | Q |
| C | 1,000@32.00 | M |
After completion of order matching, the following unfilled at-auction limit orders would be carried forward to the Continuous Trading Session.
BID | ASK | ||||||
|---|---|---|---|---|---|---|---|
| Broker | Time | Volume | Price | Price | Volume | Time | Broker |
| D | 09:02 | 6,000 | 31.90 | 32.00 | 9,000 | 09:05 | M |
| E | 09:10 | 3,000 | 31.90 | 32.00 | 4,000 | 09:13 | N |
| F | 09:14 | 2,000 | 31.90 | 32.00 | 2,000 | 09:14 | O |
| G | 09:13 | 2,000 | 31.80 | 32.10 | 6,000 | 09:12 | K |
| 32.10 | 2,000 | 09:13 | L | ||||
| 32.20 | 4,000 | 09:01 | H | ||||
| 32.20 | 2,000 | 09:08 | I | ||||
| 32.20 | 1,000 | 09:12 | J |
Example 2
Assuming that the following orders are entered during the Order Input Period:
BID | ASK | ||||||
|---|---|---|---|---|---|---|---|
| Broker | Time | Volume | Price | Broker | Time | Volume | Price |
| A | 09:06 | 1,000 | 64.25 | D | 09:09 | 2,000 | 63.75 |
| B | 09:02 | 5,000 | 64 | E | 09:08 | 3,000 | 64 |
| C | 09:12 | 2,000 | 63.75 | F | 09:03 | 2,000 | 64.25 |
| G | 09:10 | 2,000 | 64.25 |
The IEP is calculated to be $64 and the cumulative available quantities at the bid and ask sides at $64 are 6,000 and 5,000 shares respectively.
Possible IEP | Acc. Bid Qty | Acc. Ask Qty | Matched Shares |
|---|---|---|---|
| 64.25 | 1,000 | 9,000 | 1,000 |
| 64 | 6,000 | 5,000 | 5,000 |
| 63.75 | 8,000 | 2,000 | 2,000 |
A broker, who wants to match the surplus at IEP or is of the view that the IEP is on the high side can enter an ask at-auction order of 1,000 shares or more. Assuming Broker H enters an ask at-auction order of 5,000 shares during the No-cancellation Period and the order book is as follow:
BID | ASK | ||||||
|---|---|---|---|---|---|---|---|
| Broker | Time | Volume | Price | Broker | Time | Volume | Price |
| A | 09:06 | 1,000 | 64.25 | H | 09:16 | 5,000 | at-auction order |
| B | 09:02 | 5,000 | 64 | D | 09:09 | 2,000 | 63.75 |
| C | 09:12 | 2,000 | 63.75 | E | 09:08 | 3,000 | 64 |
| F | 09:03 | 2,000 | 64.25 | ||||
| G | 09:40 | 2,000 | 64.25 |
The IEP is now changed from $64 to $63.75 but the number of tradable shares is increased from 5,000 to 7,000.
Possible IEP | Acc. Bid Qty | Acc. Ask Qty | Matched Shares |
|---|---|---|---|
| 64.25 | 1,000 | 14,000 | 1,000 |
| 64 | 6,000 | 10,000 | 6,000 |
| 63.75 | 8,000 | 7,000 | 7,000 |
If another broker I is of the view that the IEP is low and enters a bid at-auction order of 10,000 shares. The order book is as follow:
BID | ASK | ||||||
|---|---|---|---|---|---|---|---|
| Broker | Time | Volume | Price | Broker | Time | Volume | Price |
| I | 09:18 | 10,000 | at-auction order | H | 09:16 | 5,000 | at-auction order |
| A | 09:06 | 1,000 | 64.25 | D | 09:09 | 2,000 | 63.75 |
| B | 09:02 | 5,000 | 64 | E | 09:08 | 3,000 | 64 |
| C | 09:12 | 2,000 | 63.75 | F | 09:03 | 2,000 | 64.25 |
| G | 09:10 | 2,000 | 64.25 |
The IEP is changed from $63.75 to $64.25 and the number of tradable shares is further increased to 11,000.
Possible IEP | Acc. Bid Qty | Acc. Ask Qty | Matched Shares |
|---|---|---|---|
| 64.25 | 11,000 | 14,000 | 11,000 |
| 64 | 16,000 | 10,000 | 10,000 |
| 63.75 | 18,000 | 7,000 | 7,000 |
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