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    Itayose

    Introduction

    Itayose is a Japanese method that commodity exchanges use to set prices. The auction market does not recognise the time of order entry. The opening price is determined on the principle of price priority. The contract price determined will be the price that maximises the traded volume and minimises the untraded volume.

    How Does the Itayose Method Work?

    The Itayose method works on the condition that all market orders are executed first, followed by all limit orders to sell/buy executed at prices lower/higher than the execution price. Lastly, all limit orders are executed at the execution price. All market orders not accepted by the Itayose method are invalid.

    Rules to Determine the Contract Price Under the Itayose Method

    Condition 1: The price where bids and offers match each other within the range, between one tick above the highest and one tick below the lowest order price (1)

    Condition 2: In the case where there are several prices that meet condition 1, then the price that will maximise the traded volume.

    Condition 3: In case there are several prices that meet condition 2, then the price that will minimise the difference between the cumulative volume of sell orders and buy orders (hereinafter called "surplus volume")

    Condition 4: In case there are several prices that meet condition 3, then the price will be either of the following: 1. In the case where the cumulative sell volume is larger than the cumulative buy volume at all such prices, then the lowest price 2. In the case where the cumulative buy volume is larger than the cumulative sell volume at all such prices, then the highest price

    Otherwise, the price in condition 5

    Condition 5: One of the following prices: 1. In case the highest price among the prices at which the imbalance (if there are several prices where there are imbalances on both, the sell and the buy sides, then it shall be limited to the lowest price among the prices where there are sell-side imbalances, and the highest price amongst the prices at which there are buy-side imbalances; the same shall apply hereinafter) is smallest, is lower than the reference price, then such highest price 2. In case the reference price falls within the range of the prices, at which the imbalance is the smallest, then reference price (2) 3. In case the lowest price among the prices at which the imbalance is smallest is higher than the reference price, then such lowest price

    Notes: 1. The executable price range may exceed the range defined by the price limits on bids/offers. 2. "Reference Price" shall be determined as follows: (a) The last contract price on the trading day (b) In a case where the price described in (a) is not available, then the reference price for the price limits on bids/offers on the trading day.

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