When an electronic market reopens in the morning how are all the bids handled?

Question

When an electronic market reopens in the morning how exactly are all the bids (including market orders from both sides) handled?

A good answer should include a description of the process the exchange uses to determine the outcome, that is orders executed and at what price.

Consider for example the following order book:

Answer 1

When an order is placed, it receives a time stamp. The time stamp determines the priority of an order on the order book. Earlier orders at a given price are executed before later orders at that price. This occurs for buy orders and for sell orders.

It's worth knowing that cancel/replace orders where you lower the number of shares/contracts in an order do not lose their time priority. However, you cannot cancel/replace with a larger number of shares in your order because that effectively let's you cut in line and prevent others from trading.

Answer 2

The process an exchange uses to match orders differs from one exchange to the other, and specifically the process of opening the market varies also, in some cases placing the burden on the lead market maker appointed in the relevant security.

A method that might work in this situation could be as follows:

1. Determine the midpoint - 840.80
2. Match off the market orders on both sides at that midpoint price (11,150 shares).
3. This leaves 2,953 shares on the ask side
4. These can be matched off against all of the bids, leaving 2,646 shares to fill at market on the ask side. When any new bids come in, they will be matched up against the outstanding market orders until they are exhausted.