Closing time: How passive investing is reshaping equity market microstructure
The expansion of indexing is driving a dramatic migration of trading volume to the market close, transforming the auction into a focal point for liquidity and risk transfer. Discover how this shift is altering the cost curve, price formation, and the strategies traders use to navigate today’s benchmark-centric environment.
Correlation between the growth of indexing and MOC volume
Trading patterns in global equity markets have shifted materially over the past decade, likely driven in large part by the expansion of indexing and passive investment strategies. As these strategies have grown to represent a significant share of global assets under management, their operational requirements—particularly the need for precise benchmark alignment—have reshaped market microstructure. Index funds and ETFs are structurally incentivized to execute trades at the closing auction because official net asset values (NAVs) are calculated using closing prices, and any deviation can result in tracking error. Consequently, Market-on-Close (MOC) orders have become the dominant mechanism for end-of-day execution, concentrating liquidity at the close. This surge in closing-auction activity now accounts for a substantial share of daily volume, elevating its role in price discovery and risk transfer across modern equity markets.1
Market implications
Institutional traders benchmarked to the close increasingly view the auction as the most reliable source of liquidity. The closing print concentrates a significant share of daily volume, supported by predictable contra flow from index funds and ETFs. Trading at the close is often cost-effective because spreads compress sharply in the final minutes compared to the open, where volatility can be higher and spreads wider as the market digests overnight news and information. This makes the close attractive for minimizing price slippage and reducing trading costs. However, this advantage is not uniform.
While the closing auction is often viewed as the anchor for price discovery, setting the official benchmark price for the day, its role can create a feedback loop on days with heavy MOC participation. The concentration of volume at the close can shift the auction from ‘price-revealing’ to ‘price-forming,’ particularly in less-liquid names or during index events.2
Waiting until the close, which is intended to minimize tracking error and benefit from deeper liquidity, can paradoxically push prices away from their pre-auction equilibrium. The more participants cluster at the close, the greater the risk that the perceived or forecasted auction price is affected by the cumulative impact of these orders. This effect is particularly pronounced on rebalance days, when passive and active flows converge and the closing price can end up materially above or below the last traded price just minutes before the auction.
For traders, this underscores the need to understand both the cost curve and the dynamics of price discovery at the close. Pre-trade analytics and careful order sizing are important to avoid amplifying market impact. Markets fluctuate as buyers and sellers ebb and flow, but managing our impact costs as efficiently as possible are paramount. In some cases, utilizing different execution strategies is beneficial. Some may be as simple as staggering executions into the close using close-aware algorithms, while other market situations may be best approached with more passive strategies or with human intervention. These methods are especially valuable when trading in less-liquid stocks when a more hands-on approach is needed.
Growth of indexing and AUM trends
Indexing has expanded its footprint within global AUM. In 2024, the AUM of passive funds surpassed that of active funds, and its market share continues to climb. Due to the structural incentive for index managers to execute at the close, the closing auction has evolved into a focal point for liquidity, attracting large institutional flows and reinforcing its role in global price discovery.
As liquidity increasingly concentrates toward the end of the day, active managers are compelled to shift their execution to that window. Trading earlier often means crossing wider spreads, whereas participating in the MOC auction provides access to deeper liquidity and tighter spreads, albeit at unknown prices from earlier in the session. This migration by active managers further amplifies MOC volumes, reinforcing the trend.
Figure 2: Daily Average Comparison of Trade Volume – USA versus Developed Europe versus APAC
| USA | Developed Europe | APAC (JP + Asia ex) | |||||||
| Open % | Close % | Last 2 Hours % | Open % | Close % | Last 2 Hours % | Open % | Close % | Last 2 Hours % | |
| From Jan 2018 | 0.97% | 8.40% | 37.33% | 0.66% | 19.59% | 19.25% | 2.66% | 11.01% | 41.24% |
| From Jan 2019 | 1.00% | 9.24% | 37.80% | 0.68% | 23.27% | 18.10% | 2.78% | 13.20% | 40.88% |
| 1 Year | 0.93% | 12.11% | 35.09% | 1.04% | 30.03% | 15.99% | 2.92% | 15.97% | 37.82% |
| Q4 2025 | 0.87% | 13.10% | 35.11% | 1.12% | 32.96% | 14.71% | 2.88% | 15.84% | 37.94% |
| 25-Dec | 0.93% | 15.39% | 33.85% | 1.25% | 34.82% | 12.87% | 2.94% | 16.78% | 38.40% |
Source: Instinet as of December 31, 2025. ‘Last two hours’ figures exclude closing auction.
The US and APAC allocate less volume to the close but more to the final two hours compared to Europe. Europe leads in closing auction participation, while Japan stands out for higher open auction volume. Despite these regional differences, all markets show a clear upward trend in allocation to the close over time.Regional differences amplify these trade volume considerations. December 2025 data shows that Developed Europe allocates roughly 34.82 percent of daily volume to the closing auction, compared with 15.39 percent in the United States and 16.78 percent in Asia ex Japan.3 Japan stands out for its reliance on the open auction, which accounts for 5.36 percent of daily turnover versus the global norm of around 1 percent. But Japan also allocates 23.8 percent of their daily volume to the closing auction, highlighting the structural contrasts that influence global execution strategies. In Europe, leaving more flow for the final print may reduce tracking error, while in Japan, balancing between the open and continuous trading sessions could be more effective.
Aligning with the Market-on-Close landscape
The close is likely to remain a focal point for liquidity provision and risk transfer. For both passive and active managers, understanding and adapting to this new landscape will be important. Looking ahead, continued innovation in execution strategies will shape how participants navigate the increasingly benchmark-driven environment of modern equity trading. If the rise of Market-on-Close volume is best viewed as a structural response to the growth of indexing and benchmark-centric execution, we believe this cycle will continue: more indexing leads to more reliance on the close, which deepens liquidity at the final print and further anchors execution to that benchmark.