Late trading


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Late trading

Late trading of mutual fund shares occurs when investors placing trades after 4 PM receive the 4 PM price. These late traders can use the information revealed after 4 PM to guide their trades: buying funds when their current value is greater than their 4 PM value and selling the funds when the reverse is true. Doing so allows them to earn expected abnormal returns at the expense of the fund's long-term shareholders.

Late-Day Trading

A practice in which a hedge fund buys or sells shares in a mutual fund after the end of a trading day, but asks the fund to record the transactions at the end of the trading day. Because the net asset value (NAV) of a mutual fund is determined at the end of each trading day, transactions that occur after the end of the trading day may distort the fund's true NAV. This allows a hedge fund to close their positions the next trading day at a profit. Late-day trading is considered unethical, but it is not illegal.
References in periodicals archive ?
Quick gains have been made by GAIL (India) to emerge the top gainer on the BSE in late trading.
In this book, he analyzes the causes of the late trading and market timing scandal, examines the scandal's effects on investors, and explores the regulatory response by the New York Attorney General, the SEC, and NASD/FINRA.
The financier, who went to Oxford University with Mr Cameron, and Pentagon Capital Management took part in illegal late trading - when shares are bought after markets have shut.
The euro was initially bought against the dollar and the yen, but it erased the gains in late trading.
But in late trading, they reversed course when the Bush administration detailed economic sanctions against China to protect American paper producers from what it called unfair Chinese government subsidies.
Company shares fell more than 6 percent in late trading.
US shares trimmed losses in late trading last night after oil prices retreated by the best part of $2 US, leaving the price of a barrel of US light crude standing at just above $52 US in early trading today.
Late trading allowed some investors to illegally place orders for funds after the close of trading.
One analyst estimated that market timing costs passive fund investors at least $5 billion a year, and late trading another $400 million.
Some companies allow special clients to participate in late trading, which lets them buy at the current day's closing price and profit if the price rises when the market opens the next morning.
Corporate governance remains a popular topic, with both houses turning their attention to the mutual fund industry and the perceived problems of late trading and market timing.