What it means
In an itayose session, orders are accepted but not executed straight away. Buyers and sellers place orders at various prices, and the exchange builds up a picture of total demand and supply.
At the end of the collection period, a single price is chosen and all the orders that can trade at that price are executed together. This is also known as a call auction.
The aim is to find the price at which the greatest number of shares can trade. It reduces the chance that a single large order at the start of the day pushes the opening price to an unrepresentative level.
The pricing rule is straightforward. At the chosen price, all buy orders priced above it and all sell orders priced below it must be executed, and orders at exactly that price are matched as far as possible.
Among candidate prices, the one that produces the largest executable volume wins, with further tie-break rules if needed. The method is used when the market opens and closes, since these are moments when information has built up overnight or when many investors want to trade at the day's final price.
Index funds, for example, often prefer the closing price. After the opening auction, trading moves to continuous matching, which in Japan is called zaraba.
For a non-finance professional, itayose is a helpful example of how market design affects fairness and price discovery. A business that is listing shares or buying a stake should know that the opening and closing prices are formed by an auction, so the headline price may reflect the whole crowd rather than a single trade.
In practice
Real-world examples.
Example
A large investor wants to buy shares at the market opening. Rather than risk moving the price with a single order, she places a limit order into the opening auction. Her order is matched with sellers at the single auction price.
Example
A fund manager tracks an index and wants to trade at the closing price so that the fund's price matches the index. He submits orders into the closing auction. The operations team confirms the execution at the official closing price.
Example
A company's investor relations team explains to retail shareholders that the opening price is set by an auction. The team notes that the price may differ from the previous close because overnight news changes orders. They add the explanation to the shareholder FAQ.
Formula
Calculation
Auction price = the price that maximises the executable volume, where executable volume = the smaller of the cumulative buy quantity at or above the price and the cumulative sell quantity at or below the price
Suppose the order book shows the following, using dollar prices for illustration. At $10.00, cumulative buys are 9,000 and cumulative sells are 1,000, so executable volume is 1,000. At $10.10, buys are 7,000 and sells are 3,000, so executable volume is 3,000. At $10.20, buys are 4,000 and sells are 5,500, so executable volume is 4,000. At $10.30, buys are 1,500 and sells are 8,000, so executable volume is 1,500. The largest is 4,000 at $10.20, so every matched order trades at $10.20.Case study
Seen in the real world.
Hikari Electronics is an illustrative, fictional listed company that announced a surprise acquisition after the close. The next morning, investors expected a large price move and were unsure at what level the shares would open.
During the opening auction, orders accumulated on both sides. As the indicative price was published, traders adjusted their orders, and the market gradually converged on a single price that cleared the most shares. The shares then opened at that price, and continuous trading began.
The company's finance director later told the board that the auction had given a fairer starting point than one rushed trade would have done. The illustrative lesson is that a collected, batch-style opening allows big news to be absorbed before trading speeds up.
Watch out
Common mistakes.
- Thinking itayose matches orders as they arrive, when it collects orders first and matches them at one price.
- Assuming all orders in the auction trade at the price they entered, when matched orders trade at the single auction price.
- Treating the indicative price as final, when it can change until the auction ends.
Questions
People also ask.
What is the difference between itayose and zaraba?
Itayose is the batch auction method used for opening and closing, while zaraba is continuous matching during the trading day.
Why use an auction at the open and close?
It concentrates liquidity at one moment and gives a more representative price at times when information has built up.
Is itayose used only in Japan?
The name is Japanese, but call auctions with the same principle are used on exchanges around the world.
From the founder's library
Take it further with the book.
Build your financial confidence beyond this definition. Shihan's full-length guide, Accounting Fundamentals, takes the same plain-English approach and turns it into a complete, practical playbook for non-finance managers, business owners and students - with chapter-end quiz answers and presentation slides included.
25% off with code MMHQ25, applied at checkout. Priced in USD - checkout may show the equivalent in your local currency.
View the book and save 25%Related