The price of an ETP at any point during the trading day is determined by how much the underlying asset has risen or fallen from its closing price the day before. So what happens to the price of ETPs listed on European exchanges which tracks underlying assets traded in overseas markets and in different time zones? This is achieved by the pre-market and after-hours trading provisions in the U.S. stock exchanges, which is implemented through electronic communication networks.

U.S. stock exchanges are open from 14:30 to 21:00 GMT (UK time zone); however, pre-market trading starts as early as 9:00 GMT and runs until markets officially opens. Once the market is close the after-hours session begins and runs until 1:00 GMT.

Unlike regular trading hours, the pre-market and after-hours sessions are characterised by low volumes and liquidity, which inevitably increases the bid/ask spread.

ETPs and GDRs

Given these extended hours, international market makers have been able to quote spreads even after US markets are closed. This is made possible by Global Depositary Receipts (GDRs). GDRs are certificates that represent a particular number of shares in a US company and are sold through foreign brokers. GDRs provide indirect access to major US stocks – with the added convenience of an investor’s local broker and being denominated in local currency. GDRs should track the price of the underlying stock – otherwise, there would be arbitrage opportunities.

So how can an investor ensure that Leverage Shares ETPs move in tandem with the US stocks they aim to track?

• During LSE trading hours: By checking that the ETP moves in lockstep with the corresponding GDR. The GDR, on the other hand, should follow the pre-market and initial trading moves of the US stock itself.
• When US markets open: In hours that are common to both the GDR’s location and the market where the US stock trades – the GDR, the US stock, and the ETP should move in tandem.

Example: Below is an example of a Leverage Shares 3x Apple ETP (LON: AAP3), its corresponding GDR (FRA: APC), and the US stock (NASDAQ: AAPL) in action.