SGX’s 26-Nov Closing Routine Attracted S$1.4 billion in Turnover

Daily Closing Routines of the Singapore stock market will typically account for approximately 10% of daily turnover on a day-to-day basis. However, trading days that see Index changes become effective on the close can see a surge in turnover during the Closing Routine.
When Mapletree Commercial Trust joined the STI effective the Sept 20 close, with multiple additions to the FTSE EPRA/NAREIT Global Developed Index also effective, the Sept 20 Closing Routine drew 8 times the turnover it had seen in the preceding sessions of Sept.
Similarly, turnover in the Nov 26 Closing Routine surged more than tenfold what the Closing Routine had averaged in the preceding 17 sessions of Nov. This was on the back of scheduled Index changes by another Index provider.

Normal trading hours for stocks listed on Singapore Exchange are from 8:30am to 5:16pm. This consist of Opening and Closing Routines, a mid-day break, 2 trading sessions and a 10-minute Trade at Close phase. The first (morning) continuous trading session spans 9:00am to 12:00pm and the second (afternoon) continuous trading session spans 1:00pm to 5:00pm.

The Closing Routine, which commences after a normal day’s trading stops at 17:00, spans 6 minutes with an algorithm used by SGX to compute a single price at which orders at the end of the Closing Routine are matched.

The single price can be particularly useful for brokers or large fund investors with comparative larger orders that need to be allocated across multiple customer accounts.

Recent Surges of SGX Trading Activity in Closing Routines

Index rebalances can see significant surges in trading volumes during Closing Routines. Scheduled rebalances involve index reviews, announcement of changes subsequent to the review, then changes become effective (usually two or so weeks) after the announcement of the changes. Index providers will clearly communicate the trading day, and note whether it is the open or close of that trading day, that the changes become effective.

With another Index rebalance becoming effective on the Tuesday November 26 close, trading turnover during the Closing Routine surged to S$1.405 billion. The previous time this Index provider made component changes that involved Singapore stocks with comparatively large market value was on May 31, 2018. In that instance, the Closing Routine trading turnover reached S$1.926 billion on the multiple component changes becoming effective.

Tuesday (November 26)’s S$1.405 billion turnover in the Closing Routine was more than tenfold the average S$111 million in turnover for the preceding 17 Closing Routines in November 2019. Another similar instance occurred during the Closing Routine on September 20, when quarterly FTSE ST Index rebalancing and FTSE EPRA/NAREIT Global Developed Index rebalancing become effective. The September 20 Closing Routine saw trading turnover for the routine surge to S$758 million, compared to an average of S$93 million over the preceding 14 sessions of September.

The FTSE EPRA Nareit Global Real Estate Index Series is developed by FTSE Group, together with the European Public Real Estate Association (EPRA) and the National Association of Real Estate Investment Trusts (Nareit), to track the performance of listed real estate companies and REITs worldwide.

Trading the SGX Closing Routine

For a normal trading day, the Closing Routine begins at 5:00pm with all unmatched orders carried forward to the 6-minute Closing Routine. Key times for the Closing Routine are as follows:

The pre-close phase starts at 5:00pm and ends randomly at any time from 5:04pm hours to 5:05pm. A list of orders that can be entered during the pre-close phase can be found here. Note no orders are executed during the pre-close phase, however traders are able to see the indicative closing price.
The non-cancel phase begins simultaneously with the end of the pre-close phase, which may be at any time from 5:04pm to 5:05pm.
Before 5:06pm the closing price (or equilibrium price) will be published, which will be the price that has the largest tradable volume and the lowest imbalance. For instance, if there are multiple prices that equally maintain the highest tradeable volume, the closing price will be price with the lowest net difference between the cumulative bid volume and cumulative ask volume. If there are multiple prices that equally maintain the highest tradeable volume, and equally maintain the lowest net difference between the cumulative bid volume and cumulative ask volume, further determinants are used to calculate the closing price.
Any unmatched orders in the Closing Routine are carried forward into the Trade at Close Phase, which is a ten-minute session that begins after the Closing Routine ends.

As noted in the SGX Rulebook, the Closing Routine is designed to reduce the risk of manipulating closing prices with a single transaction at an unusually high or low price, just before the trading session ends.

Watching the Flows at the End of the Trading Day

Closing routines that coincide with index rebalances becoming effective can see a surge in orders and turnover as large institutional investors calibrate their existing stock interests with new index weightings. Note that under these circumstances, just because a stock’s index inclusion becomes effective during a closing routine does not necessarily mean its share price will rise as investors may already maintain an adequate interest in the stock, or even a higher interest than is required at the effective time of the rebalance.

SGX Opening Routine Flows

Opening Routines for stocks listed on Singapore Exchange can also see more turnover than usual when the Opening Routines coincide with the expiry of relevant futures contracts.

Opening Routines that coincide with the Final Settlement Price calculation for Singapore-based futures contracts, have seen Opening Routine turnover approximately 12 times the Opening Routine turnover for the relevant component stocks on a normal day-to-day basis since 2017.

For instance, tomorrow, on Friday Nov 29, the final settlement price of a futures contract that is based on Singapore stocks will be determined during the Opening Routine. At that time, index arbitrage traders will typically close their cash positions in the stock market which had been set up to offset their exposures in the futures market.

The Opening Routine is a 30-minute session, before normal trading starts at 9:00am. It comprises a pre-open phase and a non-cancel phase. The pre-open phase begins at 8:30am and ends randomly at any time from 8:58am to 8:59am. Like the pre-close phase, the pre-open phase allows order entry, order modification and withdrawal of orders but no matching of orders. The Opening Routine non-cancel phase begins simultaneously with the end of the pre-open phase, which may be at any time from 8:58am to 8:59am The computed price will be the opening price for the day. Note that unmatched orders are carried forward into the morning trading session.

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