What Is a Market-on-Close (MOC) Order in Trading?
Explore the mechanics and significance of a key trading order type that finalizes prices at the market's close.
Financial markets provide various mechanisms for buying and selling securities, allowing participants to manage investments and execute strategies. These mechanisms involve different types of orders, each designed to achieve specific objectives regarding price and timing. Understanding these order types is important for navigating trading complexities, offering flexibility in how transactions are initiated and completed. The choice of order type often depends on an investor’s goals and their perception of market conditions.
What Market-on-Close Orders Are
A Market-on-Close (MOC) order is an instruction to buy or sell a security at the official closing price of the trading day. Unlike a standard market order that executes immediately at the best available price, an MOC order waits until the market’s close to be filled. The exact execution price is not known when the order is placed, as it will be the price determined at the end of the trading session.
MOC orders serve specific financial strategies. Investment funds and exchange-traded funds (ETFs) frequently use MOC orders to align their portfolios with the closing prices of underlying assets, which is necessary for accurate valuation and index tracking. Traders might also employ MOC orders to exit a position without holding it overnight, especially if they anticipate significant price movements before the next trading day. This order type helps ensure participation in the final price discovery process.
How MOC Orders are Executed
MOC orders are executed during a specific period known as the closing auction, which occurs at or just before the market officially closes. Exchanges collect these orders throughout the day, and they become active as the closing auction process begins. This auction mechanism aims to determine a single closing price that balances all buy and sell interest.
Exchanges establish specific cutoff times for submitting and modifying MOC orders. For example, on the New York Stock Exchange (NYSE), MOC orders must be received by 3:50 p.m. Eastern Time (ET), and their cancellation or reduction in size is prohibited after 3:45 p.m. ET. Similarly, Nasdaq has its own deadlines, with MOC orders must be received by 3:55 p.m. ET and becoming unchangeable after 3:50 p.m. ET. These strict deadlines ensure an orderly closing process and provide transparency for market participants.
The closing auction involves MOC order imbalances. An imbalance occurs when there is a disparity between the total volume of buy MOC orders and sell MOC orders for a particular security. Exchanges often publish these imbalances to the market, allowing other participants to observe the supply and demand dynamics at the close. This information can attract offsetting interest, where traders might place orders to help balance the market ahead of the final price determination.
Market Impact of MOC Orders
The collective activity of MOC orders can influence the closing price of a security. When a large volume of MOC orders accumulates, especially with an imbalance between buying and selling interest, it can contribute to price movements in the final minutes of trading. For instance, a buy imbalance might exert upward pressure on the closing price, while a sell imbalance could lead to a lower closing price. This reflects the principles of supply and demand at the end of the trading day.
MOC orders also provide liquidity at the market close. The closing auction has high trading volume, as institutional investors and other large participants seek to execute their orders at the official closing price. This concentration of activity can create a pool of liquidity, potentially allowing for the execution of large orders with reduced price impact compared to continuous trading.
The public dissemination of MOC order imbalances by exchanges provides signals to other market participants. This transparency allows traders to gauge the institutional interest in a particular stock as the market approaches its close. While these signals do not guarantee a specific price movement, they can inform trading decisions and contribute to the price discovery process at the end of the day. This interaction between MOC orders, imbalances, and market response highlights their influence on closing prices.