Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail
Investing Answers Building and Protecting Your Wealth through Education Publisher of The Next Banks That Could Fail

Call Rule

What it is:

The call rule is a rule that requires the official opening price of a cash commodity to be near the previous day's closing price of that commodity.

How it works (Example):

For example, let's assume that on June 1, the price of gold is $1,000 an ounce at the end of the trading day. Using the call rule, the opening price of gold must be $1,000 an ounce on June 2 (or the next trading day if June 2 falls on a weekend or trading holiday).

Why it Matters:

Thought it seems intuitive that yesterday's closing price should be today's opening price, it wasn't always that way. The Commodity Futures Trading Commission (CFTC) established the call rule because traders were making private bids among each other overnight, which wildly altered opening prices the next day. In 1906, the Chicago Board of Trade (CBOT) adopted the rule, and the Supreme Court affirmed the legality of the call rule in 1918.