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Call auctions: A Solution to some difficulties in Indian finance

Author

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  • Susan Thomas

    (Indira Gandhi Institute of Development 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.

Suggested Citation

  • Susan Thomas, 2010. "Call auctions: A Solution to some difficulties in Indian finance," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2010-006, Indira Gandhi Institute of Development Research, Mumbai, India.
    • Handle: RePEc:ind:igiwpp:2010-006
    as

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    File URL: http://www.igidr.ac.in/pdf/publication/WP-2010-006.pdf
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    References listed on IDEAS

    as
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    2. Comerton-Forde, Carole & Rydge, James, 2006. "The influence of call auction algorithm rules on market efficiency," Journal of Financial Markets, Elsevier, vol. 9(2), pages 199-222, May.
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    12. Carole Comerton-Forde & James Rydge & Hayley Burridge, 2007. "Not all call auctions are created equal: evidence from Hong Kong," Review of Quantitative Finance and Accounting, Springer, vol. 29(4), pages 395-413, November.
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    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Obtaining liquidity for illiquid stocks
      by Ajay Shah in Ajay Shah's blog on 2013-04-06 17:24:00
    2. India's privatisation problem
      by Ajay Shah in Ajay Shah's blog on 2011-06-11 00:47:00
    3. India’s Privatisation Problem
      by Ajay Shah in Citizen Economists on 2011-06-13 16:40:34
    4. Obtaining liquidity for illiquid stocks
      by Ajay Shah in Citizen Economists on 2013-04-08 22:00:45

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    Cited by:

    1. Rajesh Acharya & Vishal Gaikwad, 2014. "Pre-open call auction and price discovery: Evidence from India," Cogent Economics & Finance, Taylor & Francis Journals, vol. 2(1), pages 1-11, December.
    2. Nidhi Aggarwal & Susan Thomas, 2019. "When stock futures dominate price discovery," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 39(3), pages 263-278, March.
    3. Nidhi Aggarwal & Susan Thomas, 2014. "The causal impact of algorithmic trading on market quality," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2014-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    4. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Pandey, Ajay, 2015. "Impact of the introduction of call auction on price discovery: Evidence from the Indian stock market using high-frequency data," International Review of Financial Analysis, Elsevier, vol. 39(C), pages 167-178.
    5. Sangram Keshari Jena & Ashutosh Dash, 2015. "Is call auction efficient for better price discovery?," Asian Journal of Empirical Research, Asian Economic and Social Society, vol. 5(8), pages 102-113, August.

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    More about this item

    Keywords

    Market microstructure; call auctions; illiquid securities; circuit breakers;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G19 - Financial Economics - - General Financial Markets - - - Other

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