Market-on-Close (MOC) Orders
Market-on-Close (MOC) orders are specialized order types that guarantee execution at the official closing price of a security. These orders play a crucial role in end of day trading and are particularly important for index funds, institutional investors, and traders seeking to match benchmark prices.
How MOC orders work
MOC orders participate in the closing auction process of exchanges, where buy and sell orders are matched to establish the official closing price. Unlike regular market orders, MOC orders:
- Can only execute at the market close
- Cannot be canceled after a specific cut-off time
- Participate in price formation for the closing auction
- Must be clearly designated as MOC orders when submitted
Market impact and timing considerations
The timing of MOC order submission is critical:
- Early submission helps reduce market impact
- Orders contribute to published imbalance information
- Cut-off times vary by exchange but typically occur several minutes before close
- Late submissions may be rejected or subject to restrictions
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Role in market structure
MOC orders serve several important functions in modern markets:
Price discovery
- Help establish reliable closing prices
- Concentrate liquidity at market close
- Enable price formation through auction mechanisms
Index fund operations
- Facilitate index tracking and rebalancing
- Reduce tracking error versus benchmarks
- Enable creation/redemption processes
Risk management
- Allow precise end-of-day position management
- Provide guaranteed execution at official close
- Support portfolio rebalancing activities
Trading considerations
When using MOC orders, traders must consider:
Execution certainty
- Guaranteed execution at closing price
- No price limit protection
- Subject to market impact cost
Information leakage
- Published imbalance data reveals order flow
- Early submission signals trading intention
- May attract opportunistic traders
Operational requirements
- Strict submission deadlines
- Special FIX message requirements
- Need for backup execution strategies
Market quality impact
MOC orders influence market quality through:
- Increased closing auction volumes
- Enhanced price discovery process
- Concentrated liquidity at market close
- Potential volatility near closing time
Modern electronic trading protocols and matching engines have evolved to handle the growing importance of closing auctions and MOC order flow efficiently.
Regulatory considerations
MOC orders are subject to specific regulations including:
- Exchange-specific cut-off times
- Imbalance publication requirements
- Regulation NMS considerations
- Special handling during market disruptions
Understanding these requirements is essential for proper MOC order management and compliance.