BlogStock MarketPre-Open Session

Pre-Open Session

The pre-open session is for a duration of 15 minutes i.e. from 9:00 am to 9:15 am. The pre-open session is comprised of the Order collection period and an order matching period. The price band applicable shall be the same as the normal market.

The order collection period of 8* minutes (9:00 AM to 9:08 AM) shall be provided for order entry, modification, and cancellation. (* – System driven random closure between 7th and 8th minute). During this period orders can be entered, modified, and canceled.

What is the Pre-Open Market Session?

The Pre-Open market session is utilized to arrive at the ideal opening price of a stock for the current trading session.

The duration of the pre-open market session is from 9:00 a.m. to 9:15 a.m. which is 15 minutes before the trading session starts on: NSE and BSE. Pre-open market strategy is provided to stabilize heavy volatility due to some major event or announcement that comes overnight before the market actually opens for trading.

Special events, like merger and acquisition announcements by a company, de-listing of stocks, debt-restructuring, credit-rating downgrades, etc., can have an impact on investors.

The session helps the market to stabilize the prices of various companies’ shares by determining the actual demand and supply of the shares. In the process of determining demand and supply, the equilibrium price is decided. This helps in bringing stability as the price and trades are not decided on the basis of trends.

Timing Schedule of Pre-Opening Session

The 15 minutes of the pre-open market session is broken into three sub-sessions:

How Is the Stock’s Opening Price in the Pre-Open Market Session Achieved?

During the pre-open market session, a call auction takes all orders and then arrives at an equilibrium price. The equilibrium price is the price at which the maximum number of stocks can be traded based on the demand and supply quantity and the price.

In a call auction price mechanism, the equilibrium price is determined as shown below. Assume that NSE received bids for particular stock XYZ at different prices between 9:00 am and 9:15 am. Based on the principle of the demand-supply mechanism, the exchange will arrive at the equilibrium price – the price at which the maximum number of shares can be bought/sold. In the below example, the opening price will be 105 where a maximum of 27,500 shares can be traded.

During order matching, period order modification, order cancellation, trade modification, and trade cancellation are not allowed. The trade confirmations are disseminated to respective members on their trading terminals before the start of the normal market. After the completion of order matching, there is a silent period to facilitate the transition from the pre-open session to the normal market. All outstanding orders are moved to the normal market retaining the original time stamp.

Limit orders are at a limit price and market orders are at the discovered equilibrium price. In a situation where no equilibrium price is discovered in the pre-open session, all market orders are moved to the normal market at the previous day’s close price or adjusted close price/base price following price-time priority. Accordingly, the Normal Market / Odd lot Market and Retail Debt Market open for trading after the closure of the pre-open session i.e. 9:15 am. Block Trading session is available for the next 35 minutes from the opening of the Normal Market.

Calculation of Index Price-

As can be seen in the above steps, the Opening Price of the stock is decided in the order matching period. Therefore, the Open Price of individual stocks will only be displayed to the traders after 09:08 AM. However, investors would have noticed that the price of the index (SENSEX, NIFTY, etc.) starts moving from 09:00 AM itself, as soon as the order entry begins. This is possible because the stock exchanges calculate an indicative price for the index, based on the live orders being received for the stocks in the index.

Example: Let us consider SENSEX for understanding as it is a market index that is comprised of 30 stocks. When the orders are submitted for these 30 stocks in the order collection period, an indicative value of all the stocks can be calculated through supply and demand. Depending on the weights of these stocks in SENSEX, the indicative price of the index can be calculated. This indicative price continuously changes as the orders keep flowing in till 09:08 AM. The opening price of SENSEX is then calculated once the Open price of the 30 stocks is finalized. If no trade happens in any of the 30 stocks in the pre-opening session, then the previous day’s Closing Price is used for the calculation of the index price.

Special Pre-Open session

The special pre-open session is applicable to the below type of securities:

  1. IPOs securities – first day of trading. This also includes SME IPOs
  2. Re-listed Securities first day of recommencement of trading. (as defined under para 1(C) of SEBI circular no. SEBI/Cir/ISD/1/2010 dated September 2, 2010)
  3. Stocks having derivatives contracts on the Ex-date of trading after undergoing corporate restructuring*

*Corporate Restructuring: Merger, demerger. Amalgamation, capital reduction/consolidation, scheme of arrangement, in terms of the Companies Act and/or as sanctioned by the Courts, in cases of rehabilitation packages approved by the Board of Industrial and Financial Reconstruction under Sick Industrial Companies Act and in cases of Corporate Debt Restructuring (CDR) packages by the CDR Cell of RBI.

Below are the timings for the special pre-open session:

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Chart Source– Tradingview.com

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