Abu Dhabi Securities Exchange Adopts Pre-Closing Session Call Auction


Abu Dhabi Securities Exchange (ADX) announced its decision to implement a new mechanism to calculate the closing prices and its shift to a new free-float index. This move comes in the continuous efforts of ADX to develop its operations in accordance with the best international standards applied in the field. The new mechanism will go into effect starting 2013.

On this occasion, Mr. Rashed Al Baloushi, CEO of ADX, said that:” There will be a pre-closing auction session to run from 1:50 pm to 2:00 pm. During this period, brokers will be allowed to enter orders of buy or sell into the automated system as well as alter them but without executing them. After the end of the pre-closing session, the system will automatically determine the closing price in accordance with the same criteria of determining the opening price; the system will also execute all buy and sell orders that are executable on the calculated closing price.”

“ADX has opted to adopt Call Auctions to determine closing price for a stock. Especially that the closing price of securities is widely used by market participants as a benchmark for portfolio valuation as well as index calculation” Added Mr. Al Balouhsi

ADX CEO reiterated: "Today, most developed markets use the call auction mechanism, which gives a more accurate reflection of the real price of a stock, especially if the last trade price was not realistic. In order to maintain a stable stock market, we have set the daily price fluctuation limits of stocks, at a maximum limit 15% of the closing price and a minimum of 10%. This change is within the limit provided by the market regulator Securities and Commodities Authority (SCA). “

Mr. Al Baloushi also announced that ADX will shift, beginning from next year, to a Free Float Index. “We have opted for this shift because a Free Float Index construction takes into consideration only the free-float market capitalization of a company for the purpose of index calculation and assigning weight to stocks in the index. Free-float market capitalization takes into consideration only those shares issued by the company that are readily available for trading in the market. It rules out government holding, founders holding and other locked-in shares that will not come to the market for trading in the normal course. In other words, the market capitalization of each company in a free-float index is reduced to the extent of its readily available shares in the market,” explained ADX CEO.

“A Free-float index also reflects the market trends more rationally as it takes into consideration only those shares that are available for trading in the market. It also makes the index more broad-based by reducing the concentration of top few companies in Index,” Said Mr. Al Baloushi.

”we have commenced on an awareness campaign to aid our stakeholders in understanding the effects and requirements associated with the new decisions made" ADX CEO said, concluding that the new mechanism needs time to reach our stakeholders and the industry professionals across the country” .