Why do prices pause and equity goes into auction ?

[JGH03]

Can someone please explain why a particular equity goes into auction ?

I had a position open on Rio Tinto this afternoon. From 15:49 to 15:54 there was a gap in the graph where no price updates came through. I phoned my spreadbetting company to query this and was told that "the underlying market went into auction" and there were no automated price updates available. Pressing further, I was told that this happens when there are periods of "extreme volatility", and "it gives the market a chance to calm down".

Yet at the time this happened, the prices had been in a steady uptrend all afternoon. The graph shows some volatility around 13:20 (in a period of 6 minutes the price fell about 150 points and recovered) but over the 25 minutes up to 15:49 prices had moved only 60 points. Nevertheless the price did make a new high 318 points above the low of 13:19.

So, could someone kindly explain this further. In particular, what rules does the market follow in order to trigger an auction ? I would prefer to avoid opening a new position just before such an event occurs.

Thanks
John

 

[JGH03]

Not really. There are several entries relating to auction but none that answer my question.

Thanks anyway.

 

[JGH03]

The rise in price from the day's low is almost 20%.

Looking back I see that there was also a gap in the graph from 13:12 to 13:17. At this point the price was 339 points below the high of 8:15. That's a fall of over 16% - or, expressing the fall as a percentage of the new low price - almost 20%.

I'm putting 2 and 2 together ... can anyone confirm whether I've got the right answer ?

 

[MrGecko]

Take all of this with a very large pinch of salt, but...

If prices move by enough, perhaps the exchange will put some sort of limit up / down conditions on them (i.e. stop them trading for 5 mins)...

... and during this 5 mins, dedicated Market makers are obliged to quote prices at which they will deal at (to the exchange, but not to the rest of the market - like a sealed bid auction)... after everyone has calmed down a bit, the trading begins again.

As I said, take with a pinch of salt. This is a rather UNeducated guess.

 

[JGH03]

With salt in short supply at present this certainly sounds plausible. The real question is how much movement in the price is "enough" ? It would be good to know for sure so that I can avoid opening a new position if the market is within a few points of triggering an auction.

Thanks.

 

[foredog]

At 8am there is an auction.

If after this the stocK trades 10% from this there is an auction, and further 10% moves from this auction price cause anothr auction

Rio open 1940

Fell to 1745 -10% auction

rallied to 1925 +10% auction

 

[JGH03]

Thanks Foredog.

So I'd put 2 and 2 together and come up with the wrong answer: it is the movement since the previous auction that is significant rather than the change since the day's high / low.

On checking your figures I was surprised to see the variance between the prices shown by my SB company and the official figures looked up on DigitalLook. (The open was 1940(mid price ?) on DigitalLook vs 1959 (bid price - actually, previous day's close on the SB graph); high was 2079 on DL vs 2085 on SB graph; and the low was 1624 on DL vs 1605 on SB graph.) This makes it harder for me to know precisely when an auction will occur, though it should be enough to give me an indication.

Thanks for explaining.