Posted at 8:00 a.m.
From one day to the next, I notice that trades in securities that I monitor as an investor are made after the stock market closes at 4:00 p.m. How do these post-closure transactions work? Why are they allowed? Which investors have access to it? Can they disadvantage investors who do not have access to them?
Normand Boisjoly
First element of response1it should be remembered that most stock markets in the world are usually open for five to seven hours a day, on weekdays.
In North America, the Toronto Stock Exchange (TSX), the New York Stock Exchange (NYSE) and the NASDAQ market share the same trading hours: 9:30 a.m. to 4 p.m., Monday to Friday, except holidays. These sometimes vary according to the two countries.
However, economic and financial activity is not limited to these hours. And financial markets from all over the world and under various time zones are interconnected in real time.
Accordingly, significant price fluctuations may occur at any time depending on the news, outside of the regular trading hours of a particular stock market.
To adjust to the globalization of financial markets and advances in electronic trading technologies, some major stock markets have established trading periods outside of their usual hours of operation.
This is what is referred to in the financial industry as pre-opening and post-closing trading and trading.
Pre-market trading usually takes place from 8:00 a.m. to 9:30 a.m. on weekdays. In North America, the New York Stock Exchange and the NASDAQ market allow transactional trading between brokers before the opening, but not the Toronto Stock Exchange.
As for after-market negotiations, they start at 4:00 p.m. at the end of the week and can go until 8:00 p.m., depending on the market. At the Toronto Stock Exchange, post-close transactional trading between brokers and accredited investors takes place from 4:15 p.m. to 5 p.m.
Why ? For who ?
That said, what is the interest of investors for these transactions before or after the stock market? To answer this question, The Press sought the advice of Martin Roberge, who is a senior analyst of North American financial markets at the financial firm Canaccord Genuity, in Montreal.
“First, you should know that announcements of company results that diverge from expectations as well as revisions to forecasts of future results that take place before or after regular stock market sessions are the most frequent reasons for price fluctuations. of the shares of the companies concerned during pre- or post-trade transactions”, indicates Mr. Roberge.
These downward or upward price fluctuations during the before or after market often prove to be exaggerated and very temporary, before being tempered during the following and regular trading session.
Martin Roberge, North American Financial Markets Analyst
According to Martin Roberge, “These pre-market and post-market trades can be useful for portfolio managers who have been waiting for such an upward or downward ‘overreaction’ in the price of stocks they are already monitoring, in order to take advantage of a opportunity to sell or buy them at suddenly advantageous prices depending on their investment objectives.
Furthermore, drawing on his experience in the analysis of the North American financial markets, Martin Roberge considers that beyond the day-to-day transactions carried out by “traders” (traders) and minute speculators, price fluctuations and the volume of trades made in the forward and after trades can sometimes be used as indicators of the appetite for risk among the general investor.
“For example, when a sudden, sharp drop in the stock price of a company or an entire industry during the pre or post market fails to elicit a wave of buy trades , it suggests that investors in general have little or no interest in these stocks or this industry,” he said.
“We have seen this phenomenon several times over the past year in certain major sectors on the stock market, such as the shares of large technology companies. »
Note 1: Courtesy of TD Direct Investing, an independent investing and discount brokerage subsidiary of TD Bank
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