Even after the closing bell of a stock exchange rings, there's more work to do. Each security must have a closing price established and as many buy and sell requests as possible must be matched, along with any order imbalances corrected. A closing cross is a type of “price discovery” calculation that sets the spot price of a security based on supply and demand and other market factors. These prices are then used throughout the financial industry to calculate such things as mutual fund values and indexes.
Of course, no one is sitting there, abacus and slide rule at the ready, making these calculations...it is all done electronically. In addition to regular day trading, there are three types of orders that only take place during the closing cross: market on close, limit on close and imbalance-only.
Market on close orders indicate the purchase or sale should take place at whatever the closing price is for that day. Limit on close (LOC) means a buy order, for example, should take place at a range of acceptable closing prices.
So, if We Limit Everything Bank places an LOC buy order for a stock, it might specify a maximum limit of $8 per share. If the stock closes at $8.50, the order will not go through. Imbalance-only orders are similar to LOC orders but are simply placed by traders to make sure there will be enough matches if there is an imbalance between buyers and sellers for a particular security.