Which statement about batch auctions (call auctions) is correct?

Question

BlackTom AI · Accepted Answer

Batch (call) auctions collect submitted buy and sell orders over a fixed time window and then determine a single clearing price at which matches are executed simultaneously.

Key concepts: limit orders specify the worst price a trader will accept; at a candidate clearing price p, all buy orders with limit ≥ p are potential executions and all sell orders with limit ≤ p are potential executions. The auction mechanism chooses the price that maximizes executed volume (or equivalently best balances supply and demand), and then fills trades at that single clearing price, using tie-breaking rules if needed.

Step-by-step demonstration with numbers:
- Suppose buy orders: 100 shares @10, 200 @9, 300 @8 (total potential buys at or above a price).
- Suppose sell orders: 150 shares @8, 250 @9, 200 @10 (total potential sells at or below a price).
Evaluate candidate prices:
- At p = 10: buys ≥10 = 100; sells ≤10 = 150+250+200 = 600 → executed volume = min(100,600) = 100.
- At p = 9: buys ≥9 = 100+200 = 300; sells ≤9 = 150+250 = 400 → executed volume = min(300,400) = 300.
- At p = 8: buys ≥8 = 100+200+300 = 600; sells ≤8 = 150 → executed volume = min(600,150) = 150.
The price that maximizes executed volume is p = 9, yielding 300 shares traded. All matched orders are executed simultaneously at that single clearing price.

Why this is correct: the defining feature of a call (batch) auction is aggregation over time followed by a single-price clearing. This contrasts with continuous auctions where orders are matched immediately as they arrive, possibly at different prices. Common incorrect statements would claim immediate execution, multiple trade prices, or first-come-first-served fills—those describe continuous or other hybrid mechanisms, not batch auctions.

Therefore, the correct statement is: orders are collected and executed simultaneously at a single clearing price — which matches the provided answer.

Which statement about batch auctions (call auctions) is correct?Single choice

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