Big offer price jumps

[AndyMc2]

Hi,

at my work we check our prices against a Bloomberg terminal. Sometimes the offer price of a stock jumps up just before close of business. For example, yesterday sedol 0422864 - Herald Investment (ISIN GB0004228648) was trading at about 320 / 323 GBp all day but at 16.53 the offer price changed to 468 GBp.

I felt that the correct price to go with was the 320 / 323 although the bloomberg close price was, strictly speaking 320 / 468. However this would have given a market movement of like 45% on our funds calculated on offer basis or even midpoint basis.

From a unit pricing point of view - do you agree with me that 320 / 323 is a fairer reflection of the value of the stock or do you agree with my boss that the close price should be used no matter what. (this morning it was back to trading at 320 / 323 ish)

Also, do you know the reason for this sudden increase in offer price just before COB? I have seen this before a few times. A colleague of mine suggested that market makers like to quote a ridiculously high offer price just before close to ensure that no trades went through toward the end of the day. To keep things clean. Is this a viable explanation and if so, is this technique recognised - is it regarded as good/bad practise, does it have a name perhaps and can it cause any problems for investors or the quoted company?? It causes me problems in my job so it would be nice to know the reason it happens!

Thanks in advance to anyone with any info on my query - p.s its my very first post on this board so please be nice!!

[Stocktrading101]

Hey Andy, great to see you on the forums, I look forward to seeing you around and reading your posts .

Regarding the quote jump, I do not have access to a Bloomberg terminal but I do see the same jump occur quite often under my level II quotes. This typically occurs RIGHT after the close (16:00:01+) and the reasoning that market makers do this purposely would make logical sense to me.

At 16.53 that would be 4:53 PM, so the market has already been closed then for almost an hour, did you mean 15:53?

I personally disagree with your boss for using the inflated numbers, especially when the next day the security reopens right where it left off before the spike. Spreads can become pretty extensive after hours as only limit orders can be utilized, with smaller securities typically equating to a larger spread.

[AndyMc2]

Aaaagh - I've just type a whole reply and erased it - think I pressed a button when I was aiming for capslock. Bizarre.

Anyway, here goes again.

The time of these price updates is actually 16.50 (GMT) - I think the FTSE stops trading at 16.30. A guy on the bloomberg helpdesk told me that these prices being quoted after close of market were settlement prices sent by the exchange. I'm not sure that would explain it. The price screen looks like this:

16.50.18 330/468
16.50.18 399
16.46.16 330/333
16.46.16 331.5
16.35.58 331
16.35.58 331
16.35.58 330/332
16.35.38 331
16.35.38 330/332

As you can see the very top one is the anomalous offer price. I think we agreed that that could be an intentional thing on behalf of the market maker.

I'm not sure that the bloomberg helpdesk guy's explanation of settlement prices explains it. Do you think it could be that the market maker is processing trades - like a backlog of orders he builds up and cleans up after close of business? Is that viable?

Cheers for your help - PS you need to get a b/berg terminal; mine (my work's) is my favourite toy!!