LONDON (Reuters) – The final five minutes of trading have become the busiest time of day for stock market traders in Europe.
Aside from an initial burst of activity after the open in the morning followed by a brief flurry when Wall Street opens, a growing portion of the daily equity volumes is now concentrated into the five-minute closing auctions at the end of the day.
Popularity - Funds - Regulations - Shift - Liquidity
The growing popularity of passive and index-tracking funds and tougher regulations are driving the shift, which is draining liquidity in the $11.1 trillion market and raising concerns about big price swings and possible disruption to price discovery.
The trend is also fracturing the industry as rivals look to take a slice of the action by launching their own post-close trading products. If sustained, it will likely stir the debate about whether there is even a need in the long term for an elongated trading day.
Products - Funds - ETFs - Funds - Prices
Products like exchange-traded funds (ETFs) and hedge funds typically use end-of-day prices set during the closing auctions for their daily pricing.
Equity ETFs in Europe have ballooned in recent years and are now worth about 500 billion euro ($558 billion). That’s up more than 8% in the first half of the year and a whopping 38% from January 2017, according to Morningstar data.
Rise - Window - GMT - Day - Portion
With their rise, the five-minute window between 1530 and 1535 GMT each day is capturing a bigger portion of daily volume, which averaged about 70 billion euros in June.
Closing auctions across Europe’s major bourses have on average accounted for 20% of daily average volumes in the first half of this year, and hit their highest on record of 23% in June, according to Rosenblatt Securities which tracks volumes.
% - Years - Trend - United - States
That’s up from just 13% three years ago. There is a similar trend in the United States, where activity is also clustering in the auctions.
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