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.The growing popularity of passive and index-tracking funds and tougher regulations are driving the shift, which is draining liquidity in the US$11.1 trillion market and raising concerns about big price swings and possible disruption to price discovery.
Closing auctions across Europe's major bourses have on average accounted for 20per cent of daily average volumes in the first half of this year, and hit their highest on record of 23per cent in June, according to Rosenblatt Securities which tracks volumes. The jump has been particularly noticeable this year as overall trading volumes have slowed amid tighter regulation and rising costs and as investors have in general shunned equities even as prices have soared.
"The associated risks are a deterioration in price formation and liquidity during trading sessions, not to mention the operational vulnerabilities at the end of the day given the volumes concentrated in the closing auction," the watchdog said in its report. He has adjusted to the new norm. He tends to place a percentage of an order at the settlement price in the closing auction and then opportunistically trade the rest of the order if a certain price is hit.
The exchanges often charge higher fees to transact in the closing auction compared with intraday levels. Each bourse has a different fee structure so it's hard to pinpoint an exact premium. The product got UK regulatory approval a few years ago, but it has only seen volume pick up in recent weeks, a spokeswoman said.
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