While often times more volatile than the rest of a trading day, the last minutes of the opened markets have attracted an increasing number of exchange traded fund traders seeking to capitalize on the elevated activity and greater market liquidity.
A shift towards ETFs and other index-based investment vehicles have raised the importance of the last half-hour of the U.S. trading day, or from 3:30 to 4:00pm, when these passive vehicles typically conducting most of their activity to accurately portray their benchmarks, reports Robin Wigglesworth for the Financial Times.
“This dynamic is a pretty big story,” Bob Minicus, head of global equity trading at Fidelity, told Financial Times. “We view the close as an opportunity. As more volumes migrate towards the close, we will follow it.”
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The elevated actions have attracted traditional active managers to execute more of their trades during this period of the day as they benefit from the greater market liquidity.
“It’s become a self-fulfilling prophecy. The liquidity feeds on itself,” Todd Lopez, head of electronic trading for the Americas at UBS, told FT. “The concentration around the close is likely to accelerate as more people try to minimize their market impact.”
However, this funneling effect in market activity over the last half-hour of the day, which makes up almost a quarter of all U.S. stock trading, has irked some traders whom argued that liquidity is being sapped away from the middle of the day. According to Credit Suisse, the share of U.S. stock trades that occur between noon and 2:00pm has pulled back to 20% from over 23%.
Some even warn that this sudden rush to trade at the end of the day increases the risks of potential fat finger moves.
“A lot of trading is concentrated in a very narrow period of time,” Marco Pirondini, head of US equities at Amundi Pioneer Asset Management, told FT. “It can be a very big technical problem. I would love regulators to start to think about this before there’s a problem, rather than after one.”
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The first and last half-hour of the U.S. trading day now makes up 39.6% of all daily trading volumes, compared to 31.5% 10 years ago. A decade ago around 16% of all trading occurred in the final 30 minutes of the day, but it has increased to over 20% in 2012 and almost 25% this year.
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