Most investors and even most individuals who even read the newspaper or listen to the news once in a while remember the issue with late trading of mutual funds after-hours. After-hours trading in mutual fund shares is illegal. However, let’s not confuse mutual fund trading after-hours with the completly legal and regular occurance of stocks trading after-hours. In fact, not only is it legal but there is broad access to both after-hours and pre-market trading through nearly all online brokers. For those that are informed there are tremendous trading opportunities to be had.
Before I go any futher, here is a quick historical refresher. On September 3, 2003, New York Attorney General Eliot Spitzer (yes, the Emporer’s Club member) announced the issuance of a complaint against New Jersey hedge fund company Canary Capital Partners LLC, charging that they had engaged in “late trading” in collusion with Bank of America’s Nations Funds. Bank of America is charged with permitting Canary to purchase mutual fund shares, after the markets had closed, at the closing price for that day. Spitzer’s investigation was initiated after his office received a ten-minute June 2003 phone call from a Wall Street worker alerting them to an instance of the late trading problem.
Late trading in mutual funds is illegal under New York’s Martin Act and U.S. Securities and Exchange Commission (SEC) regulations due to the unfair advantage the late trader gains over other traders. In the United States, mutual fund prices are set once daily at 4:00 p.m. Eastern time. Late trading occurs when traders are allowed to purchase fund shares after 4:00 p.m. at that day’s closing price. Under law, most mutual fund trades received after 4:00 p.m. must be executed at the following day’s closing price.
Late trading, or as it’s normally referred to, “after-hours trading” is completly legal and widely available for stocks. On average, roughly 5% of the total volume traded on the stock exhanges occurs outside of the regular 9:30 am - 4 pm EST regular session. The activity overnight is regular and significant, so much so that all investors should be aware regardless of whether or not you choose to participate.
The after-hours and pre-market trading sessions are primarily news driven trading sessions with earnings events being the primarly driver. In fact, about 90% of publicly traded companies report earnings outside of regular market hours. This is the reason why nearly all stocks from NYSE listed JC Penny (JCP) to NASDAQ’s Oracle (ORCL) trade activley in the extended-hours following earnings annoucments each and every quarter.
Although the professionals don’t want you to know, extended-hours trading in stocks happens morning and night each and every day with great bargains to be had for those that are informed.
Did you know that JC Penny dropped over 10% before the open today?
