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Late Opens are short periods in which the opening of a trading day is delayed. A delayed opening can last just a few minutes or last for several hours. Usually, there is some type of extenuating circumstance that makes it prudent to delay trading for a short period of time.
While there are a number of situations that could cause a delay in opening, there are three common reasons for authorizing a temporary delay at the start of the trading day. First, a delay in the exchange opening for active trading may be due to the need to restore some degree of balance to a market that closed with a large bid-ask mismatch on the previous trading day. When that is the case, it gives the exchange a chance to determine if the factors that caused the disparity the previous day have been reduced, or at least reduced. The idea behind the delayed opening is to assess the situation and be prepared to respond accordingly when the exchange opens for trading.
Another common reason for a delayed opening has to do with crucial announcements that have the potential to create a huge buzz in the market. Delaying the opening gives investors more time to fully evaluate the announcement in question and determine what impact, if any, it will be felt on their current holdings. This is often the case when a large corporation makes an announcement of a major change in the company’s product lines or top executives, or a merger announcement. This gives investors a little more time to digest the announcement and minimizes the chance of making hasty buying and selling decisions.
Stock exchanges may choose to issue a delayed open due to world events that are likely to have a major impact on trading activity on the day. Events such as natural disasters, military coups, and political election results can be so profound that one or more key markets are forecast to be significantly affected. As in the case of corporate change announcements, the opening of the stock market may be delayed as a means of allowing investors to explore the impact of the event in more detail before jumping to conclusions and possibly making unwise decisions regarding trading that day.
While a late open is often seen as an inconvenience, the fact is that the judicious use of a late open is in the best interests of not only the exchange in question, but also the investors who trade on the exchange. By providing a little more time for all stakeholders to assess current circumstances before starting to trade, the chances of making uninformed trading decisions are minimized and therefore have less potential to undermine the market.