Late day trading surge raises concerns in global stock markets

(MENAFN) Recent data from analytics firm Page Exit reveals a notable uptick in trading activity during the closing auctions of stock exchanges in both the United States and Europe, prompting concerns about potential vulnerabilities in major global markets. In the first quarter of the year, European exchanges saw a record 29 percent of daily share turnover occurring during end-of-day auctions, up from 22.5 percent in the same period of 2021. Similarly, in the United States, the proportion of Stocks traded during closing auctions rose to 19 percent in the first quarter of 2024, compared to 12.5 percent in 2021.

Closing auctions typically span between five to ten minutes, setting the final prices for stocks at the end of each trading day. The surge in late-day trading reflects a broader trend observed in both regions, driven largely by the popularity of exchange-traded funds (ETFs) and passive investing strategies. These strategies rely heavily on the closing prices of indexes, influencing significant trading volumes during this critical period. This shift has allowed active fund managers, aiming to outperform benchmarks, to execute substantial transactions discreetly, minimizing market impact.

However, the concentration of trading activity during the closing auctions has raised concerns among market participants and regulatory bodies alike. A senior executive from a European exchange highlighted the disconnect between end-of-day trading and earlier market sessions, emphasizing discussions with major banks about the potential risks associated with this concentrated trading period. Referred to as "concentration risks," these vulnerabilities could expose stock markets to technical disruptions or market instability if any operational issues arise during this crucial trading window.

The surge in closing auction trading underscores the evolving dynamics of global financial markets, influenced significantly by the rise of passive investing strategies and the increasing role of ETFs. These trends highlight the need for continued vigilance and potential regulatory scrutiny to ensure market resilience and mitigate risks associated with concentrated trading activities. 



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