Burst of end-of-day trading not distorting stock market: France's AMF

LONDON (Reuters) - Bursts of activity in the final minutes of trading on Euronext's ENX.PA Paris stock exchange have not led to drastic swings in prices, France's financial watchdog said on Tuesday, playing down industry concerns about the potential disruption to prices.

The volume of shares traded during European exchanges’ official closing auctions, which take place five minutes after markets close, has soared in recent years, driven by the growing popularity of passive and index-tracking funds and tougher regulation.

The industrywide phenomenon has become "more pronounced" in France in the last two years, hitting as high as 41% of average daily volume in June for the benchmark CAC 40 .FCHI, up from a range of 20% to 28% in 2015, according to the Autorite des Marches Financiers (AMF).

While France’s market regulator noted that the spike in volume at the close could expose market participants to potential trading incidents, it said it has not led to market distortions.

“At this stage, it is not possible to conclude that there has been a definite deterioration of the price formation process,” the AMF study concluded.

The report comes after the AMF warned in July that the shift towards closing auctions could lower liquidity during the rest of the daily trading session, potentially distorting price-setting mechanisms and increasing price swings.

Products like ETFs and hedge funds typically use end-of-day prices set during the closing auctions for their daily pricing.

The increase in trading the ‘fixing’ is also due to new European trading regulations and the will of investors to avoid high-frequency traders, the watchdog also said.

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Reporting by Julien Ponthus; Editing by Josephine Mason