WHAT IS Indicative Match Price

Indicative Match Price is the price at which the maximum volume of orders can be executed at the time of an auction. If two or more prices can maximize executable volume or, in other words, there are multiple indicative match prices, the auction occurs at the last sale price. The indicative match price facilitates price discovery and transparency while helping resolve order imbalances.

BREAKING DOWN Indicative Match Price

Indicative Match Price represents the price at which the greatest number of buy and sell orders can be traded during a single price auction, such as the opening or closing auction on the NYSE Arca. Indicative Match Price can be better understood by considering a closing auction scenario. In this case, if there is no order imbalance, all market-on-close (MOC) orders are executed at the indicative match price. If an order imbalance exists, the maximum MOC orders are executed based on time priority.

The following examples demonstrate the concept of indicative match price for Widget Co. stock on the NYSE Arca exchange.
 
Example 1: No order imbalance

  • Market order to buy 2,500 shares of Widget Co.
  • Market order to sell 1,000 shares
  • Limit order to sell 500 shares at $25.50
  • Limit order to sell 1,000 shares at $25.75

Indicative Price Match = $25.75.
This price will be published by NYSE Arca, which will also show matched volume of 2,500 shares without an imbalance.
 
Example 2: Order imbalance

  • Market order to buy 10,000 shares of Widget Co.
  • Limit order to sell 3,000 shares at $26
  • Market order to sell 1,000 shares
  • Limit order to sell 2,000 shares at $26.25

Indicative match price = $26.25.

This price will be published by NYSE Arca, which will also show volume of 10,000 shares and a total imbalance of 4,000 shares.

Economic and Academic Analysis of Indicative Match Price

In the paper "Dynamical regularities of U.S. equities opening and closing auctions," Damien Challet and Nikita Gourianov investigate the "static properties" of opening and closing auctions, such as the “common auction volume relative to daily volume and order value distributions.” They also investigate how the final auction price changes in response to order placement, especially vis-a-vis imbalance, and how order placement improves or worsens events. Here they find a large difference between the opening and closing auctions, “emphasizing the role of liquidity and simultaneous trading in the pre-open or open-market order book.” In the paper, the authors show that the indicative match price is “strongly mean-reverting,” because the imbalance is mean-reverting, which they link to strategic behavior.