Kevin Tyrell, Head of Strategy and Research, NYSE Equities
We’ve discussed the importance and liquidity of closing auctions, but during periods of high volatility the opening auction is also a key source of liquidity. What’s more, the NYSE opening process reduces investor transaction costs by tens of billions of dollars per year.
Opening auctions on NYSE, like IPO auctions and closing auctions, are overseen by the Designated Market Maker (DMM). DMMs can open a stock in an automated manner or, depending on the situation, run a manual auction to aggregate interest and open at a more iterative price. This is especially important for stock-specific events such as IPOs or openings after earnings, or when market-wide volatility increases.
To assess the opening auction’s performance, we analyzed price discovery on the most volatile days in Q1 2018 (Feb. 5&6, March 1&2, March 26-28) relative to price discovery on other “standard” days. We measured open price discovery by comparing the open auction price with the market VWAP over the five minutes following the open auction. As expected during volatile periods, slippage vs. the opening price increased, but NYSE’s opening price performance changed less than electronic venues such as Nasdaq. NYSE-listed securities’ slippage increased by seven basis points while Nasdaq price changes following the open increased by 15 bps.
Following the record-setting 40.1 million average daily volume (ADV) in the 1st quarter of this year, Q2 2021 options volume was the 2nd highest of all-time with 37.6 million contracts traded per day. Robust volume was driven in part by market anticipation of a potential earlier rise in interest rates and Fed tapering, as well as increased volume in options on new issues and continued activity in retail-focused stocks.
After-hours trading has been a larger piece of the total trading volume since the onset of the pandemic, with retail presence growing stronger and earnings announcements becoming less of a factor. In this post, we examine the impact of these shifting dynamics on after-hours price discovery and order behavior.
The surge in market volatility and trading volumes since the onset of the pandemic in March 2020 has impacted numerous aspects of equity market trading. One less-studied area has been after-hours trading. After-hours has also seen changes in order flow trends and influences, and here we examine trends and shifts occurring in these sessions.