Call Auction Algorithm Design and Market Manipulation

Posted: 16 May 2005

See all articles by Carole Comerton-Forde

Carole Comerton-Forde

UNSW Business School; Financial Research Network (FIRN)

James Rydge

Grantham Research Institute on Climate Change and the Environment


It is commonly accepted that closing call auctions provide investors with access to closing prices, reduce volatility and reduce price manipulation. This paper argues that call auction design may influence the achievement of these objectives. The paper focuses on one aspect of call auction design, namely the matching algorithm used to set auction prices. Analysis of two real market cases indicates that different algorithms set different prices. The results also indicate that manipulation has a significant impact on call auction prices, with some algorithm designs more effective than others at reducing the impact of manipulation. Alternate call auction design features, such as volatility extensions, may be necessary to more effectively reduce closing price manipulation.

Keywords: Call auction, manipulation, matching algorithm

JEL Classification: G14

Suggested Citation

Comerton-Forde, Carole and Rydge, James, Call Auction Algorithm Design and Market Manipulation. Journal of Multinational Financial Management, Vol. 16, pp. 184-198, 2006, Available at SSRN:

Carole Comerton-Forde (Contact Author)

UNSW Business School ( email )

UNSW Business School
High St
Sydney, NSW 2052

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


James Rydge

Grantham Research Institute on Climate Change and the Environment ( email )

Houghton Street
London, WC2A 2AE
Great Britain

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