Auction and UT Trades

While reading ADVFN, I’ve noted many posts referring to an Auction and trades marked as UT.  Today on ADVFN, Gengulphus kindly reposted his decription that I thought I would note for future reference:

At the start and end of the trading day, and occasionally in the middle of one, a process known as an ‘auction’ takes place on shares traded on SETS or SETSmm.

The opening auction normally lasts from about 07:50 to 08:00; the closing auction from about 16:30 to about 16:35. A 5-minute auction can also be triggered in the middle of a trading day if prices are moving very rapidly. I believe the purpose of these interday auctions is to slow things down a bit and get the share price to settle down at a stable “market” level: the opening and closing auctions are similarly intended to get stable “market” opening and closing prices. There are also auctions mid-morning on the third Friday of each month, used to get stable prices for option expiry purposes. All of these auctions can get extended by a few minutes for various reasons.

In normal trading, orders are continuously coming in and being matched against each other. Each order is either an “aggressive” one that has to be dealt with at once, or a “persistent” order that can sit around waiting to be matched. The “order book” consists of all the current unmatched persistent orders - each one of which is either a sell or a buy and has a limit price, with all of the sell limit prices being higher than all of the buy limit prices (otherwise, a sell could be matched to a buy).

Aggressive orders may or may not have a limit price, and may or may not be allowed to be partly satisfied - depending on the exact combination, they are called “at best”, “execute and eliminate” or “fill or kill” orders. An incoming aggressive order gets matched against the order book as far as possible within its constraints; any part of it that is not matched is then rejected. An incoming persistent order is matched against the order book similarly; any part of it that is not satisfied is added to the order book.

During an auction, this matching is suspended. Aggressive orders are not allowed to be entered and persistent orders are allowed to build up regardless of whether they could be matched. (Incidentally, I believe this is why you sometimes see things indicating that the “bid” price is higher than the “ask” price at the time of the closing auction: the “bid” price is the highest price of any persistent buy order, the “ask” price the lowest price of any persistent sell order.) In addition, unpriced persistent orders are temporarily allowed on to the order book - they’re known as “market orders”. They’re basically for people who are willing to trade at whatever the market price determined by the auction turns out to be.

Then at the end of the auction, the whole set of accumulated persistent orders are matched against each other. The basic idea of this is to find the “uncrossing price” at which the largest number of shares can be traded - the idea being that if you go higher than this price, the number of trades goes down because there are too few people willing to buy, while if you go lower, it goes down because there are too few people willing to sell. The full rules are quite complex though - basically, they need to provide quite a lot of “tie break” rules for when two different prices will both result in the same number of shares being traded, and also to determine exactly whose orders get matched if there is a mismatch between the numbers of shares people are willing to buy and to sell at the uncrossing price.

Anyway, once the uncrossing price has been determined and which buy and sell orders get matched, all of the matched orders put together are reported as a single trade, of type “UT” (for “Uncrossing Trade”) and size equal to the total number of shares changing hands.

In particular, note that a 38,000 share “UT” trade does not necessarily mean that any particular person or organisation has bought that many shares, nor that any particular person or organisation has sold that many shares. It may be a combination of lots of smaller trades by people and organisations.