DEFINITION of 'Closing Cross'
A price discovery mechanism on the Nasdaq that crosses buy and sell orders at a single price at the end of the regular market session. The closing cross enables market participants to execute orders (both market and limit orders) at the close at a price that is fully transparent and reflects actual closing market activity. The closing cross sets the Nasdaq Official Closing Price (NOCP) for Nasdaq-listed securities. NOCPs are used as benchmark prices throughout the industry for calculating mutual fund net asset values (NAVs) and index valuations. The Nasdaq closing cross begins at exactly 4 p.m. EST and concludes at about 5 seconds past 4 p.m. The closing cross, like the opening cross, is open to all securities listed on the Nasdaq, NYSE, NYSE Amex and NYSE Arca exchanges.
Apart from its benefits like price discovery and transparency, the closing cross provides a facility for resolving order imbalances that arise in critical events such as expiration dates for index futures and options, and index rebalances.
BREAKING DOWN 'Closing Cross'
The Nasdaq closing cross process works as follows. Nasdaq accepts market-on-close (MOC) and limit-on-close (LOC) orders – which are executable only during the closing cross – between 7 a.m. and 3:50 p.m. EST. These orders are executed only at the price determined by the closing cross, which means that LOC orders will receive a better price if the buy/sell order is at a price greater/lower than the closing price. Thus, if an LOC buy order specifies a limit price of $10 for a stock and it closes at $9.99, the order will be filled at $9.99.
At 3:50 p.m., Nasdaq begins the closing auction process and disseminates information about any order imbalance on the closing book through its Net Order Imbalance Indicator (NOII), along with an indicative closing price. At exactly 4 p.m., the closing book and the Nasdaq continuous book are brought together to create the Nasdaq closing cross. The closing cross price is distributed to the financial industry and newswires immediately after its occurrence.
Wait! There's more on the closing cross - Read The Closing Cross: How NASDAQ Stock Prices Are Set.