Meeting Global and Retail Participant Needs Through Market Evolution

In 2021, Cboe® introduced early trading during the 4:00 a.m. to 7:00 a.m. trading session on its EDGX® Equities Exchange to meet global customers’ growing need to trade U.S. securities in their own time zones.¹ Since then, we have observed continued interest in trading outside of the regular U.S. market hours. To fully understand this evolution, Cboe’s North American Equities Execution Consulting team analyzed volume and price trends in pre-market and after-hours trading sessions. For consistency, we’ll be using the U.S. Eastern time zone throughout this piece.

Time Matters

Market volumes, led by an increase in retail trading, have significantly increased since the COVID-19 pandemic began. The chart below illustrates total market Average Daily Volume (ADV) by hour from 4:00 a.m. to 8:00 p.m. between 2019 and 2021. The large spike in volume around the market open and close increased substantially since 2019.

Volume around the open increased by about 120 million shares from 2020 to 2021. Retail-attested volume on Cboe’s exchanges at the open increased by 26% from 2020 to 2021, further highlighting an increase in retail trading activity. The close, which is largely attributed to institutional trading activity, remained unchanged from 2020.

Source: SIP

Pre/Post Markets

The pre-market is comprised of multiple trading sessions with various venues available during each session. 33 million shares trade per day during the early morning session, which takes place from 4:00 a.m. to 7:00 a.m. Cboe’s EDGX Exchange has 7% market share in that session. Comparatively, Cboe’s markets have 36% market share of the 44 million shares traded in the overall market during the 7:00 a.m. to 8:00 a.m. session.

The start of regular pre-market trading begins at 8:00 a.m., when some Trade Reporting Facility (TRF) venues begin trading, resulting in a significant increase in volume. On average, 186 million shares are traded per day during the 8:00 a.m. to 9:30 a.m. pre-market session, with Cboe’s markets capturing 15% market share.

In the after-hours session, which runs from 4:00 p.m. to 8:00 p.m., most of the volume is traded off exchange, excluding all official closing prints and highlighting all TRF prints with Prior Reference Price (PRP) that equals the official closing price. After-hours volume declines quickly by 4:14 p.m. and continues to steadily decrease until 8:00 p.m.

Source: SIP

Pre-market trading volumes reached a record high of about 544 million shares per day in January 2021, driven by the significant rise in retail trading volume. Since then, ADV in the pre-market session has decreased 65% to 191 million shares. The chart below shows ADV for each pre-market trading session.

Source: SIP

EDGX Order Entry

In March 2021, Cboe introduced 4:00 a.m. to 7:00 a.m. trading on its EDGX Exchange, accepting orders at 3:30 a.m. On September 7, 2021, the EDGX order entry time was changed from 3:30 a.m. to 2:30 a.m. to better accommodate market participants around the globe. The breakdown below shows the average shares sent daily in 15 minute increments before the EDGX open at 4 a.m. Prior to EDGX accepting orders at 2:30 a.m., approximately 136 million shares were sent before the open when EDGX began accepting orders. After the change in order entry time, EDGX began receiving an additional 25 million shares per day before the open.

Source: Cboe

Spreads

We also studied spreads for symbols in the S&P 500® Index during the early morning session on each exchange.² On EDGX, spreads in the S&P 500® Index were around 250 basis points (bps) in March 2021, when EDGX started offering early trading. By December 2021, the average spread in these names decreased to almost 200 bps. While there is no Regulation NMS top of book protection in the pre/post markets, Cboe exchanges will route orders to the best price on all exchanges by default, which is not the case on all trading venues.

Source: SIP

Price Swings

Finally, we examined the price change of stocks in the S&P 500® Index and Russell 2000® Index outside of regular trading hours in 2021.³ The table below shows the change in price from 8:00 p.m. to 4:00 a.m. the next day, from 4:00 a.m. to 8:00 a.m., from 8:00 am to the market open, and from the market close to 8:00 p.m. Price remains relatively stable during the pre-market and after-hours sessions for stocks in the S&P 500® Index, with a median price change of 0.03% during the 8:00 a.m.-to-open and after-hours trading sessions. Meanwhile, stocks in the Russell 2000® Index see more price volatility during each session than those in the S&P 500® Index. The largest change in price for these stocks happens between 8 p.m. and 4 a.m. the following day, with a median price change of -0.39%.

The pre-market and after-hours trading sessions are a growing part of the trading day, offering meaningful liquidity and price discovery. The addition of EDGX early morning trading has increased competition in the marketplace and introduced EDGX’s innovative Retail Priority program to this part of the trading day. Please reach out to Cboe’s North American equities coverage team with questions and to learn more about how we can help optimize your trading experience.

¹ All times are Eastern Time.

² S&P 500 is a trademark of Standard & Poor's Financial Services

³ Russell 2000 is a registered trademark of the Frank Russell Company, used under license.

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