An at-the-close order seeks to fill a transaction as close to the end of the trading day as possible. Brokers delay sending these orders until the last minutes of trading and can fulfill them from various sources. The counterpart is the open order, which forces a transaction at or near the opening price. Brokers must execute trades in a way that produces the best possible result for the client, and the SEC mandates disclosure of each market order. Investors can limit their chance of an unfavorable price by placing a sell limit order on the close.
An at-the-close order refers to a transaction that an investor expects to occur as close to the end of the trading day as possible by seeking to fill the order at or near the closing price. Brokers delay sending at-the-close orders, also known as market-on-close (MOC) orders, regardless of when they receive them, until the very last minutes of trading. Brokers can fulfill orders directly from the floor of a national or regional stock exchange, from the brokerage’s internal inventory, or from a third-party market maker. Alternatively, they can use the Electronic Communications Network (ECN), which regularly matches corresponding buy and sell orders. Floor orders must be manually passed to the floor broker before execution is possible, making timing critical for a floor order to close.
The counterpart to a close order is the open order, which forces a transaction at or near the opening price at the start of the trading day. Another name for the open order is open rotation. The timing and method of order execution may affect the overall success of the order. Limit orders, which set fixed price constraints for buying or selling, may not fill if placed too late in the trading day. For market orders, which are executed regardless of price, speed and accurate timing are paramount.
Some brokers receive incentives from market makers to route orders through them. Internal orders executed by the brokerage inventory generate profit from the spread. Regardless of how an order is executed, the broker is obligated to execute trades in a way that produces the best possible result for the client. The Securities and Exchange Commission (SEC) mandates in the SEC Disclosure Rule that brokers disclose the details of each market order and notify investors of suboptimal execution service. Brokers with poor execution records face hefty fines and penalties.
Investors selling stocks try to capitalize on the accelerated volume towards the end of a trading day by placing orders at the close. If an investor wants to limit his chance of an unfavorable price, he can place a sell limit order on the close, which places a floor on the sell price. For example, a trader who wishes to sell 100 shares of XYZ Stock at or above a sum of $50.00 US Dollars (USD) per share would place a sell limit at the close at $50 USD. If prices fell to $48 USD per share, the broker would not fill the order. If, however, the price had risen to $51 USD per share, the order would have filled.
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