The Ontario Securities Commission is seeking comment on rule changes that would permit the Toronto Stock Exchange to implement a new process for the entry and execution of market-on-close orders.

On October 2, 2002, the TSX board of directors approved amendments to its rules that would permit it to introduce the new system. The market-on-close system is designed to address concerns regarding increased volatility at the close of the continuous market and the limited opportunities for direct participation by market participants in trading at the close.

An initial MOC System was published for comment by the OSC on June 28. Eight organizations responded to the proposal. Although a majority of the commenters support the introduction of a MOC facility at TSX, a number of commenters did not support the model as proposed. To address such concerns, TSX staff has consulted extensively with the commenters, other industry participants and Market Regulation Services Inc. staff to develop a revised model.

The proposed changes include the introduction of a separate MOC book that will run in parallel to the continuous market. Orders for eligible securities (initially, MOC Orders will only be accepted on the S&P TSX 60 stocks) may be entered in the MOC Book between 7 a.m. and 3:40 p.m. At 3:40 p.m. the orders will be used to calculate the MOC imbalance, which will be disseminated to the trading community. Between 3:40 and 4 p.m., the MOC Book will be open to order entry of limit priced orders but only on the contra side of the MOC Imbalance. The MOC Book will be integrated with the continuous market book at approximately 4 p.m. A closing call, will immediately follow the combination of the Continuous Market Book and the MOC Book at 4 p.m.

The primary changes that have been made to the Initial MOC System are:

  • the revised model does not include a closing auction period;
  • the MOC imbalance is broadcast only once at 3:40 p.m. and is not continually updated until 4 p.m.;
  • the acceptance of blind limit orders in the MOC Book for imbalance offsetting liquidity;
  • the revised model incorporates broader volatility parameters; and
  • there is no random close.

The proposals are out for a 30-day comment period.