In that case, I think Rule 71 of the very comprehensive NYSE rulebook applies, which states:
Hmmm…lots of explanations but what if
Amongst all that crazy shouting and hand actions one trader says to the other at the end of the day
I bought that of you? When? I did no such thing? Do you think i am an idiot?..
So who polices this and how.
There’s an arbitration procedure for disputes between members. Of course there’s always the question of evidence, as in any other dispute resolution proceeding, so you might get away once by simply denying that you did a loss-making transaction if the other party has no evidence to prove it. But you can be assured that if something like that happens with a particular firm repeatedly, others will be very wary of doing any business with them, so abusing this would be a strategy that doesn’t payoff in the longer run.
Midway in between is a reasonable guess. I believe if there were, for example, 100k to sell and 100k to buy, it would be crossed in between the best bid and best offer on the NYSE continuous limit order book at the time of the closing bell.
The NYSE also runs a completely electronic exchange called Arca. Here’s a pdf that provides examples of the logic Arca runs during auctions. I can’t find a paper that goes into detail on the NYSE auctions, but the logic is similar.
This is known as an “out trade.” There are exchange officials on the floor and arbitration procedures. But, as **Schnitte **said, trying to cheat your counterparty isn’t a viable long-term strategy. Someone that seemed to always be involved in out trades would soon find no one willing to trade with them.
Here’s the NYSE’s answer. As far as why there’s so much volume on the close, it’s kind of arbitrary. There’s no reason why there couldn’t be a large auction run at 10am or 2pm. In fact, exchanges have tried to introduce intraday auctions. They just didn’t catch on. Everyone trades at the close because everyone else trades at the close. I should point out that most of the time imbalances are matched at prices very close to the current market prices and have little price impact.
Also, most indices use stocks’ closing prices to calculate their index values. Thus, index funds must trade at the closing price to accurately track their benchmark. This can lead to large closing trades on the dates index changes become effective. In this example (pdf) S&P MidCap 400 and SmallCap 600 funds would have to buy/sell the same stocks. They are concerned with getting the trade done. If they miss the closing price, they risk higher tracking error.
Just make sure to buy lots and lots of Frozen Concentrate Orange Juice futures.
They don’t trade FCOJ on the NYSE. You have to go down to the NYBOT for that kind of action.
It’s actually now the Intercontinental Exchange which trades FCOJ these days
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FCOJ is old hat. Snowfall futures are all the rage these days (well, not really). Also, ICE is actually the owner of the NYSE now.