Market Model

The pricing involved in exchange trading is accomplished in accordance with uniform pricing rules (the so-called " matching rules " ) established by SWX Europe. Trading takes place in an order book, according to the best buy/best sell principle and on the basis of the market model of continuous trading.

Overview of matching rules

SWX Europe recognises three different matching procedures:

• Pre-opening - the theoretical matching of orders on the book to arrive at an indicative opening price.
  
  The orders on the book are theoretically matched against each other (i.e. no executions take place) so as to determine what the potential opening price will be (principle of "largest, best execution"). Based on this calculation of the theoretical opening price, the order book can switch into one of two distinct modes:
  • Capable of opening
    If there are appropriate opposite-side orders on the book for all market orders, the order book can be opened for trading.
  • Non-opening
    If for one or more market orders, there are no corresponding order(s) on the other side of the book, the theoretical opening price cannot be determined. This impasse creates the conditions for a non-opening.
• Opening - the matching of orders on the book, which in turn triggers executions at the opening price.
  
  The orders on the book are matched in a way that trades are executed at the last theoretical opening price as calculated from the implied matching of orders during the pre-opening; the resulting price thus becomes the opening price. During the matching process, the order book is continually updated.
• Continuous trading - the matching of incoming orders against existing orders on the book, which in turn triggers executions throughout the trading day.
  
  An incoming order is matched against orders that are already on the book, and each resulting execution generates a new last-paid price. It follows that a single order can potentially lead to a number of executions at differing prices. During the matching process, the order book is continually updated.

Closing Auction

• Start of Closing Auction - At 17.20 CET, all order books for Swiss equities on SWX Europe change from the continuous trading into the auction mode.
• Auction Pre-opening - During the auction pre-opening, the system runs in a similar manner to the pre-opening at the start of the day: orders can be entered into the books but do not lead to executions. Each new order entry causes a recalculation of the theoretical opening price.
• Run Auction and Close - The manner in which the system operates at the time of "run auction and close" is like the opening: orders on the book are executed on the principle of the largest, best execution. However, the order book status changes into pre-opening status for the following trading day once the last-paid price has been established.

Definition of terms

• Price-time priority
  Prior to matching, the orders on both sides of the book are arranged according to their respective price and time of entry, regardless of the matching procedure that will be applied:
  • Order of precedence from best price to worst price (price priority)
    Bid side: market orders have priority over limit orders (limits ranked from highest to lowest price).
    Ask side: market orders have priority over limit orders (limits ranked from lowest to highest price)
  • Given equal price priority, orders are ranked according to time of entry, starting with the oldest (time priority).
    For orders limited at the same price, those that have been on the book the longest will be taken into account first.