After-Hours Trading In European Securities Becomes A Focal Point For OTC Markets

• During Q1 2024, $94.02 billion were traded in ~2,800 European securities in the US OTC equity market. A majority of this activity (68.2%) occurred post European market close (11:30 AM ET). OTC Markets Group has become a hub of after-hours trading specifically among European securities, with benefits accruing to issuers, investors, markets and market participants on both sides of the Atlantic.

  
  

  How We Got Here

  
  

  The explanation behind the headline is a confluence of macroeconomic factors and some specific developments within the US OTC market and OTC Markets Group. First, the macro factors: the long-term trends of rising global retail participation (zero commission trading) coupled with the pandemic-induced retail boom increased overall retail trading and investment globally; on the institutional side, opportunity and risk must now be managed 24×5.5 due to the speed in which information is created and consumed.

  
  

  For the US OTC equity market, OTC Markets Group’s commitment to efficient, disclosure-based markets has yielded huge benefits for issuers, investors and traders. The OTCQX and OTCQB premium markets and their disclosure-based tiering system provides foreign issuers with access to the US capital markets without additional reporting requirements. Institutional and retail investors can now access real-time pricing data on thousands of foreign securities in US dollars and within US trading hours. OTC Markets’ focus on data transparency and flagging risk ensures that investors have the information they need to make informed decisions.

  
  

  Additionally, changes to SEC Rule 15c2-11 in 2021, which codified many of the disclosure and transparency requirements OTC Markets implemented a decade prior, make it easier for larger foreign issuers to have securities quoted within the US OTC equity market. This impact is illustrated in the data below.

  
  

  Analyzing the Data

  
  

  The simplicity of OTC Markets model for issuers and participants has powered the long-term growth in the number of international securities on the market; however, changes to SEC rule 15c2-11 accelerated this trend.

  
  

  Growth in International Securities on OTC Markets

  Growth in International Securities on OTC Markets

  
  

  Activity has followed the security growth as investors gained access to global securities during US trading hours.

  
  

  Dollar Volume Growth in Trading of International Securities on OTC Markets

  $ Volume Growth has increased in correlation to the growth of the number of International Securities Trading on OTC Markets

  
  

  Although growth in activity has been consistent, patterns have emerged which point to participants and investors leveraging OTC Markets post European close to mitigate risk, react to news and capitalize on opportunities.

  
  

  OTCM $ Volume - European Cross Traded - Q1 2024

  $ Volume of European Cross Traded Securities on OTC Markets – Reflecting Peak in After Hours Trading

  
  

  The first quarter of 2024 activity data for European cross-traded securities shows no let down in a broad-based increase in securities and volumes.

  
  

  Q1 2024 and Q1 2024 vs Q1 2023

  Increase in European cross-traded securities

  
  

  The final and most important data point is that this is not a zero-sum equation. The growth in activity on OTC Markets for foreign securities is often part of the overall growth in liquidity for these securities as institutional and retail interest from the US flows back across the Atlantic for the European open after US trading ceases.

  
  

  An Oxford Metrica study of OTCQX securities of international issuers found the following:

  
  

  26% increase in share volume within the home market exchange

  67% increase in share volume within the US OTC market

  What’s Next

  
  

  The increase in the number of European securities and dollar volumes on the US OTC equity market should continue unabated as there is still plenty of room for growth. Currently, only ~21% of European public companies have a cross-traded US OTC equity security1. A virtuous cycle should be created as investors and market participants become more adept at incorporating US trading into their respective strategies.

  
  

  Additionally, awareness among European issuers of their US activity/trading symbols could alter Investor Relations strategies and drive focus when considering US institutional and retail investors.

  
  

  From a macro perspective, the continued expansion of global retail and follow the sun models for institutions will expand the demand for off-hour markets. A world where Asian retail investors have access to European securities via US markets may just be around the corner.