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I was watching a stock movement and noticed something couldn't understand! The lowest price in last few days of that stock was $1.61, and it was during the day long either, and volume traded was normal. What happened was that at 3:59pm, just one minute before the stock market closed, the stock price was $1.61 and suddenly, an increase in trading came from some big traders (Merrill, CIBC, Morgan Stanely, UBS, and BMO). They started trade with each other or trade with themselves (The same trader sold and bought). In one minute the price dropped down from $1.61 to $1.56! and market closed at $1.56.

Can someone please explain why they did that?

1

There is, on most exchanges, an auction at the end and start of the trading session. This is meant to clear outstanding orders that have not been executed that trading day (for the closing) or orders that were placed outside of market hours (for the opening). This is also a chance for the traders to build and clear their day's trading books and put themselves into their correct position for the day's trading or to sit overnight. It being thanksgiving in the US today it is likely that they wanted to take very specific positions to hold for some time until market conditions re-normalize after the holiday.

The closing auction is the most important one for big institutional traders and market makers who need to recover their desired position to be held overnight having moved away from this position during the day's trading. Market makers are paid to use their holdings against their own interests to increase the liquidity in the market. This sometimes extends as far as going from a positive position to a negative one during the trading day. At the end of the day they need to balance out their positions and return to the position that the firm has decided they want to hold over the long term so that they can return to their own interests. To do this they need to furiously trade at the closing auction so there can be a lot more movement at close. Day traders, and anyone else who doesn't want their trades to settle, will also be looking to zero their positions at close as they don't want to incur the costs of holding a position to delivery.

There are also order types that state that they must trade at close or must be filled as close to VWAP (volume weighted average price) as possible. VWAP and guaranteed VWAP orders that don't get filled completely during the rest of the session need to be filled by the end of the day so result in a marked increase in trading where the price has been moving in a direction that would improve VWAP for the trade. Traders will again be rushing to fill these in the auction.

Looking at today's date and assuming that you looked at this data in the last day or so we are also around the options expiration dates for the various exchanges so it is likely that the institutional traders were trading into a position to cover any options expiring this week.

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It's not possible to know why. There is a whole host of reasons, including the possibility that the trades happened earlier in the day. The ticker transactions you see do not include large trades. The large trades are inserted into the tape at a point it won't impact trading prices. The trades you saw could be hours old. Of course, it is possible someone entered an order to sell-at-close, most likely a mutual fund. It is also possible that the trades were part of program trading orders. It could be all of the above. It could even be a combination of some of the above. It could be due to the existence of a DRIP.

We will never know.

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    if @samuel is looking at live trading data (tick data) he is seeing trades as they happen trade by trade, tick by tick, so the trades can't be hours old. – MD-Tech Nov 23 '17 at 14:00
  • @MD-Tech unless there has been a rules change, and there well could be, "off-the-tape" trades are not recorded until later. I have not paid close attention to rules changes for several years as they no longer affect me. I write theorem's now and test data. Still, US rules did not require, and may still not require, the reporting of all live trades as they occur. – Dave Harris Nov 23 '17 at 18:21

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