With trading volumes skyrocketing during core trading hours since 2019, off-hours trading volumes are not only keeping up with the trend but also proving they are here to stay. Having previously examined the impact of increased off-hours volume on pre- and post-market price discovery, we now study this growth in off-hours volumes, as well as the role that earnings seasons and retail activity play in shaping this new normal.
Back in 2019, trading in the pre-market session accounted for a mere 16% of all off-hours trading, with post-market ADV standing at 5x the pre-market ADV. Fast forward to today, the off-hours trading landscape looks vastly different. By the end of 2021, pre-market ADV had grown +325% compared to 2019 and accounted for over 38% of all off-hours trading. This phenomenal growth in pre-market trading has utterly changed the off-hours hourly volume distribution. In 2019, 48% of all on-exchange off-hours trading occurred between 8-9:30am, and only 4% took place before 7am. With retail participation and global demand for US equities skyrocketing since then, ~8% of all off-hours trading now takes place between 4-5am, 6x the 2019 hourly share of 1.3%, while pre-7am trading now accounts for ~17% of all off-hours on-exchange trading. Despite a slight pullback in 2022 Q1, off-hours trading volumes still stand tall at ~680 million shares per day - almost double their 2019 figure and on par with last year’s ADV.
As alluded to earlier, increased retail participation could potentially be one of the factors driving investors to meet earlier before the open. Below we track the share of retail-sized* trades as a percentage of pre-market trading. The pre-market share of retail-sized trades has grown exponentially from a mere 2% of pre-market trading in January 2019 to a peak of 8.4% in March 2022. Moreover, almost ¾ of all retail-sized trades occur in the pre-market session in 2022, compared to an even split between the pre- and post-market sessions three years ago.
2022 Q1 saw an extraordinary level of earnings-related off-hours volumes, as markets reacted at an unprecedented level to companies’ earnings results. This rise in earnings-day off-hours volume further contributed to the on-exchange gain of off-hours market share, as off-hours volumes traditionally shift away from TRFs on quarterly earnings announcements. The following figure shows this massive reversal in on-/off-exchange off-hours market share on some of 2022 Q1’s most high-volume earnings result days and symbols. All six of the symbols in scope traded between 81-91% of their off-hours volume on-exchange on the day their respective quarterly earnings reports were released for 2022 Q1. The respective figure for all other dates in range was between 9-19%. NYSE Arca continued to have the lion's share of on-exchange market share during those earnings-release days trading ~60% of all off-hours on-exchange volume, with a median lead of 29% ahead of the next best venue. The recent rise in earnings-related off-hours volume has, thus, created a favorable environment for exchanges, providing some support for the drop TRF off-hours market share seen in the last three years (see next section).
Another element of this drastically-changing landscape has been the recent pressure that exchanges have put on TRFs in the clash for off-hours volumes. Within just two years, the TRF share of all off-hours trading dropped from 84% in 2019 to 60% in 2021, with NYSE Arca gaining the lion’s share of this stake and tripling its 2019 share from 6% to 19%.
Reducing the scope of this analysis to only compare on-exchange off-hours volume, NYSE Arca’s leadership position cannot be overlooked. While maintaining its lead over other exchanges in pre-market volume share at ~40% since 2019, NYSE Arca’s share of on-exchange post-market volume has increased from 1/3 of the market in 2019 to over 2/3 in 2021.
This on-exchange market share picture remains very similar for NYSE Arca when diving into Tape C symbols. In the pre-market session, NYSE Arca has increased its 2019 lead over other exchanges and now leads the way with 39% of all pre-market tape C trading, 900bps ahead of the next venue. Similarly, NYSE Arca’s share of on-exchange post-market trading has increased from 28% in 2019 to over 60% in 2021 and 2022, further solidifying its place as the leading liquidity provider for all pre- and post-market trading.
Off-hours trading volumes have skyrocketed during the last three years, in large part due the rapid growth in pre-market trading. Increased retail participation and quarterly earnings reaction have not only aided this increase in off-hours volumes, but also benefited exchanges in gaining a substantial market share of off-hours volumes. Within this changing landscape, NYSE Arca has solidified its place as the leading liquidity provider for all pre- and post-market trading, creating new opportunities for investors to trade off-hours.
* Retail-sized trades are defined as trades of 0-10 shares for equities priced over $1,000, and 0-50 shares for equities priced at or below $1,000.
Comparing listing market quality across a large number of stocks is best achieved by using a matched sample, using key firm characteristics, such as sector, market cap, price and volume. Our analysis found that NYSE-listed stocks achieve tighter spreads, lower volatility and more accurate open and close auctions than their matched Nasdaq stocks, often by a significant margin.
The eight largest NYSE closing auctions have all occurred since June 2020, driven by growth in index rebalance events. We’ve previously studied the market impact of large auction orders and more recently highlighted the significant additional liquidity opportunities at the close. With significant index rebalances on the horizon, we now focus on volume dynamics in the days before and after large index rebalances, finding additional liquidity available in the market.
To help enable a data-driven, fact-based discussion around price improvement activity, NYSE has published a study quantifying the aggregate price improvement achieved by US equity investors in H1 2022 and analyzing its composition. Our study is based on public TAQ data and evaluates every standard trade in the first two quarters against the prevailing NBBO at that time.