What is Late-Day Trading?

What is Late-Day Trading?


The Indian Stock market is open starting from 9:15am to 3:30pm on the weekdays. The majority of the investors undertake the purchase/sale of securities listed on the major stock exchanges in India, Bombay Stock Exchange (BSE) and National Stock Exchange (NSE). Indian Stock Market timings are the same for both these major stock exchanges. But what if you place an order after the trading hours? It falls under the category of After-hours (or after-market orders) trading which is carried out through electronic communication networks (ECNs).  Since the stocks are not as liquid during after-hours, after-hour trading is a risky business. The spread between the bid and the ask price is also higher in case of after hours. It is usually often used to trade on information that may have come out after the usual trading hours.

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late trading

This article will look at a special case of Late-Day trading, which may seem similar, but is actually a very different, malicious, and illegal practice.

How does it work?

Late-day trading refers to when a trade is executed after the standard local national exchanges have closed. It is illegal, unethical and a highly punishable act. The SEC defines Late Day trading as placing orders, buying or redeeming mutual fund shares after the time as of which a mutual fund has calculated its Net asset value (NAV), usually at the closing hours of the market but receiving a price that is calculated on the basis of prior NAV already determined as of that day. Such a trade violates the federal security laws since compared to an innocent investor, the investor in question is getting a very unfair advantage by buying at a price that is lower than the price at which the mutual fund share must be bought from the market. This kind of trading would then dilute the value of the mutual fund share, harming the long term investors. The advantage is provided at the expense of other shareholders.
Essentially, it’s like betting after the horse race has already concluded.


Various federal securities laws deal with late-day trading including Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10B-5. A lot of changes in regard to late trading came in the amends of 2003 and 2004. The new rules required that mutual fund purchase and redemption orders be received by the fund prior to the time it calculates net asset value and increased mutual funds’ prospectus disclosures related to market timing. These rules shifted the responsibility to mutual funds to ensure enforcement.

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  1. Pentagon Capital Management was fined millions of dollars by the securities and exchange commission for late-day trading between 2001 and 2003 for placing an order through its broker-dealer, Trautman Wasserman & Co., to illegally profit from information released after mutual funds prices were fixed at the end of each day.
  2. In 2003, Bank of America was charged for allowing Canary Capital Partners LLC (also penalized) to purchase mutual fund shares aftermarket had closed.

For a more in-depth study on how widespread the late-day trading was before 2003/04, refer to the paper by Eric Zitzewitz given in link 3 in the references section.


Late Day trading refers to the illegal and unethical practice of executing a trade after standard national exchanges have been closed. By doing this, the investor gets that day’s closing price, as opposed to the next day’s opening price, and makes the transaction appear as if they secured the trade before the trading day closed. This activity is considered illegal in most national exchanges due to the fact that it provides an unfair opportunity to profit at the expense of innocent investors. The issue of late-trading which was profusely widespread has dropped sharply after the setting up of regulations and laws since September 2003.

Author:  Aman Aggarwal

About the Author: Aman is an Economics and Finance graduate with a budding interest in Strategic Management and Investment. An avid reader of all things Behavioral and Data Science –I strongly believe in solving problems with creative solutions backed up by quantitative rigor.


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