Market-on-Close Order
A market-on-close (MOC) order is an instruction to execute a trade at the official closing price of an exchange, determined during the closing auction. MOC orders guarantee execution at the closing price without specifying a price limit, making them ideal for index fund managers and other participants requiring exact closing-price execution for benchmark tracking or valuation purposes.
Key takeaways
- MOC orders are matched in a dedicated closing auction that typically occurs in the final minutes of regular trading hours.
- Index funds and ETFs use MOC orders extensively to track benchmark closing prices with minimal tracking error.
- The closing price set by the MOC auction is used to mark portfolios to market, determine derivative settlement prices, and calculate NAV for mutual funds.
- Submission deadlines for MOC orders vary by exchange — NYSE MOC orders must typically be submitted by 3:45 PM ET; cancellations are restricted after 3:58 PM ET.
- Imbalance information from MOC orders is published before the close, allowing other participants to provide liquidity and reduce closing price volatility.
Explanation
The market-on-close order is a fundamental tool of institutional equity trading, designed to match the widespread practice of evaluating fund performance and calculating NAV at end-of-day closing prices. By guaranteeing execution at the official closing price, MOC orders eliminate tracking error between a fund's transaction prices and its benchmark, which is itself calculated using closing prices.
The closing auction is one of the most important microstructure mechanisms in modern equity markets. In the final minutes of the trading day, exchanges aggregate all MOC orders along with eligible limit-on-close (LOC) orders and resting limit orders to determine a single clearing price that maximizes the volume of shares that can be matched. This concentrated liquidity event typically produces the single highest volume minute of the trading day on major exchanges like NYSE and Nasdaq.
The closing auction also serves as a price discovery mechanism. NYSE and Nasdaq publish 'imbalance information' — showing the direction and size of order imbalance from MOC orders — approximately 10–15 minutes before the close. This transparency allows market makers and other participants to submit offsetting orders, improving price discovery and reducing the potential for closing price dislocation caused by one-sided MOC order flow.
From an execution quality perspective, MOC orders have both advantages and limitations. The primary advantage is certainty of tracking the benchmark close. The primary limitation is the absence of price control — if a large index rebalancing creates a substantial order imbalance, all MOC orders will execute at whatever clearing price the auction determines, which may be significantly different from the pre-close trading price. For index funds managing trillions of dollars, the cost of closing auction price impact during major index reconstitution events can be substantial.
Example
An S&P 500 index ETF manager must rebalance after a new constituent is added to the index at the close on Friday. The ETF submits a MOC buy order for 500,000 shares of the new constituent (which has an average daily volume of 2 million shares). The announcement of the index addition caused other index funds and anticipatory traders to also submit MOC buy orders. The resulting 15% buy imbalance in the closing auction pushes the closing price 1.8% above the pre-imbalance level, creating a predictable but unavoidable cost for all MOC buyers due to the 'index effect.'
Related terms
Borrow Cost Clearing Equity Exchange Liquidity Natural Liquidity Participation Rate Algorithm Price Discovery Reg Sho Speculator Tracking Error Transparency