The Close in an Open Outcry Market
The closing of an open outcry market is usually the final 3 minutes of trading. The closing involves 3 prices: Last, Close, and Settlement.
Last is the last price at which prices trade. It involves an actual trade that was made.
Close is a consensus decision made by the Pit Committee, with the final decision being left to the Pit Chairman! The Pit Committee and the Pit Chairman are composed of popular and usually experienced floor brokers and locals. A position on the Pit Committee is honorary, they are not paid. The Pit Committee elects one of their members to be the Pit Chairman.
The Close is a price that is acceptable to the committee with the chairman having the final say if there is a dispute. Generally, it is an average price somewhere between the highest price and the lowest price of actual trades made during the closing. The fact is that there may never have been a single trade made at the price quoted for the Close.
The Close is called after the last trade has been made. If there are many outstanding trades left unexecuted (rare), the Pit Chairman may, after a designated waiting period) re-open the market for trading. This will result in a second Close. The trading in the second period lasts for 3 minutes, but prices must stay within the bounds of the previous First Close.
The last price you see on an intraday chart may be quite different from the actual Close that is decided on by the committee.
Please realize that in a back month there may be no actual trades at all made during the Close. Some back months are so thin that they may trade only once or twice in an entire week. That is why so many of the computer generated spread recommendations are really simply a farce. Getting filled on entry or exit may be virtually impossible.
However, there will be a Close for every contract month that is open for trading, regardless of whether or not it has traded.
The Settlement is decided by the exchange. It may differ from the Close. If the exchange for some reason does not agree with where the Pit Committee has called the Close, they will override the committee and post a settlement price that is different from the Close. Usually, they agree. In some instances of back months, the settlement price is decided by the exchange since there is no last trade made during the closing minutes.
When you look at a chart of a contract month in its earliest days of trading, you will generally see a lot of funny looking price bars. In fact, if you look at prices issued by the exchange and posted in the futures section of a newspaper, you may see such crazy looking things as the Close being higher than the high or lower than the low. How can this be? It is because when a market does not trade at all, the exchange will issue a closing price that they feel is in line with the price movement in the more liquid months. It may not make any sense relative to the high or low quoted in the newspaper, but it is official nevertheless.