Call auctions: A solution to some difficulties in Indian finance

Susan Thomas

Finance Working Papers from East Asian Bureau of Economic Research

Abstract: The Indian financial system has been revolutionised by the application of a new market design : continuous trading with an anonymous limit order book at NSE and BSE. However, in certain situations, this market design has limitations. Call auctions represent an alternative strategy, where the order flow over a certain time period is pooled, and the market-clearing price obtained through an aggregated supply and demand curve. Call auctions trade off instantaneity of order execution in favour of elimination of impact cost, and can achieve a more trusted price. They can improve the functioning of the market on issues such as market opening, market close, extreme news events, and potentially for illiquid securities including bonds. Call auctions could usefully replace some existing market rules such as `circuit breakers\'. At the same time, there are many subtle elements in making a call auction market work, which require care in market design.

Keywords: Market microstructure; call auctions; illiquid securities; circuit breakers (search for similar items in EconPapers)
JEL-codes: G10 G19 (search for similar items in EconPapers)
Date: 2010-01
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Call Auctions: A Solution to Some Difficulties in Indian Finance (2010)
Working Paper: Call auctions: A Solution to some difficulties in Indian finance (2010)
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