Susan Thomas
|
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. |