What Is Closing Offset (CO) Order?
A closing offset (CO) order is a type of limit order that a trader can place during the trading day for execution at market close for that day. The trade CO price will always be that day’s closing price.
- A closing offset (CO) order is a special order type used to offset any remaining open auction imbalances that exist at the closing bell.
- A CO order is essentially a limit-on-close (LOC) order that was introduced by the NYSE in 2009 to alleviate end-of-day order imbalances.
- CO orders can only be filled at market close at the culmination of a process known as the closing auction, which is particularly important to maintaining an orderly market.
Understanding Closing Offset (CO) Order
The closing offset order is a trade type first made available by the New York Stock Exchange (NYSE) in 2009 as a means to offset daily order imbalances at market close. The CO order is a day limit order. The trader specifies a price floor for sales or a ceiling for buys, and if the closing price does not satisfy that limit price the order is closed without execution. Execution can only take place at the 4:00 market close and at that day’s closing price. Traders can cancel a CO order for any reason up to 3:45. After 3:45, an order can only be canceled due to an error. After 3:58, CO orders may not be withdrawn.
A CO order is a particular type of limit-on-close (LOC) order and may be contrasted with limit-on-open orders or market-on-close (or open) orders which do not specify a price.
At market close, the NYSE follows a prioritized protocol to fill open orders. CO orders yield to all other open orders. Within that day’s CO interest, orders are prioritized according to the time at which they were placed. Any CO order that does not satisfy the day’s imbalance will not be filled. These rules are identical to those governing market on close (MOC) and limit on close (LOC) orders. CO orders, however, must be placed in round lots. CO orders are of particular use to managers of mutual funds designed to track daily closing index values.
CO Orders and the Closing Auction
Like MOC and LOC orders, CO orders can only be filled at market close. This is the culmination of a process known as the closing auction, which is particularly important to traders as a day’s closing price is the most widely-published share price and is the key data point driving opening trading on the following morning.
At 3:45 on every trading day, the NYSE electronically publishes a rundown of open interest on each stock. NYSE rules prohibit traders from adjusting their existing CO orders once this information has been distributed, except in case of legitimate error. The exchange updates closing auction data every five seconds until closing. New CO, MOC, and LOC orders will factor into those updates and can flip the imbalance during the final minutes prior to the closing auction. Key data points in the closing bulletin include imbalance side and quantity, expected indicative match price, and expected paired trade volume at the match price.