SUPERNEWS

Macro

S&P 500's Last 10 Mins See 1/3 of Trades, Up From 27% in 2021

A third of S&P 500 trades now occur in the last 10 minutes, spotlighting passive investing's impact on market dynamics.

By Mackenzie Crow

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4/29, 08:45 EDT
S&P 500
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Key Takeaway

  • A third of all S&P 500 trades now occur in the last 10 minutes, up from 27% in 2021, driven by passive investing.
  • Closing auctions may distort prices and affect liquidity, with a study showing a 14% overnight price reversal indicating one-sided flows.
  • Despite concerns, some see the concentration of trades at close as efficient for large transactions without significantly harming market dynamics.

End-of-Day Trading Surge

In recent years, a significant shift has occurred in the US equities market, with about a third of all S&P 500 stock trades now executed in the final 10 minutes of the trading session, up from 27% in 2021. This trend, driven by the global boom in passive investing, has raised concerns about liquidity and price distortion. Passive equity funds, which have grown to more than $11.5 trillion in assets in the US, typically execute trades at the close to match the benchmarks they aim to replicate. This has attracted active traders to the end-of-session liquidity, creating a self-reinforcing cycle that may be impacting market quality.

European Markets Reflect Similar Trends

The phenomenon is not limited to the US. In Europe, the closing auction now accounts for 28% of volumes on public venues, an increase from 23% four years ago. Research from Goethe University Frankfurt suggests that this concentration of trading volume at the close can lead to price inefficiencies and reversals, indicating moves driven more by liquidity dynamics than fundamentals. This challenges the efficiency of closing auctions, traditionally seen as beneficial for market closure.

Passive Investing Under Scrutiny

The surge in end-of-day trading volumes has reignited debates around passive investing. Critics argue that it can lead to inflated valuations and market distortions, especially during major index rebalances. However, defenders of the practice, like Hitesh Mittal of BestEx Research, argue that the cost implications of buying at slightly higher prices at the close are minimal compared to the potential costs of trading in thinner liquidity earlier in the day. The debate continues as market participants and researchers assess the impact of passive investing on market dynamics and price discovery.