Navigating Global Market Closures and Early Closes: Implications for Portfolio Liquidity and Risk Management

Global financial markets are no stranger to periodic closures and early shutdowns, particularly during major holidays and seasonal transitions. These events, while routine, have profound implications for portfolio liquidity and risk management strategies. As investors navigate the complexities of 2023–2025, understanding the interplay between market timing, liquidity dynamics, and hedging tools has become essential for optimizing returns and mitigating risks.

Liquidity Challenges and Seasonal Volatility

The seasonal decline in liquidity during year-end holidays-such as Thanksgiving, Christmas Eve, and Boxing Day-has consistently disrupted trading patterns. According to Russell Investments, global equity volumes during these periods often fall to 45–70% of normal levels, leading to wider spreads, slower execution, and elevated trading costs. Fixed income and foreign exchange (FX) markets are similarly affected, with dealer inventory thinning and spreads widening. For instance, in April 2025, U.S. tariff announcements and dollar depreciation spurred a 27% surge in daily FX trading volumes to $9.5 trillion, as investors scrambled to hedge U.S. dollar exposures amid tightening monetary policies.

The MSCI semi-annual rebalance on November 25, 2025, temporarily boosted global equity volumes, but subsequent Thanksgiving-related closures dampened liquidity, underscoring the fragility of market activity during transitional periods. Such volatility necessitates proactive adjustments in execution strategies, including timing trades before mid-December or delaying transactions until early January when liquidity normalizes according to research.

Strategic Market Timing and Execution Adjustments

Strategic timing of trades is critical during periods of reduced liquidity. Investors must balance the urgency of rebalancing portfolios with the risks of executing in thin markets. Russell Investments notes that dealers increasingly rely on internal trade matching to manage client flows with minimal market impact during these periods. This approach reduces reliance on external liquidity providers, mitigating the risk of slippage and adverse price movements.

For example, in Q3 2025, institutions like KeyCorp and Citizens Financial Group employed forward-starting receive-fixed swaps to hedge against declining interest rates while minimizing initial costs. These instruments allowed them to lock in favorable terms ahead of anticipated rate cuts, demonstrating how strategic timing can align with macroeconomic signals.

Hedging Instruments and Regulatory Evolution

The regulatory landscape for hedging has evolved significantly in 2025, particularly with the International Organization of Securities Commissions (IOSCO) releasing its Final Report on Pre-Hedging in November 2025. The report defines pre-hedging as dealers acting in a principal capacity to manage risk from anticipated client transactions, emphasizing transparency and fairness. However, debates persist over whether pre-hedging in competitive request-for-quotes (RFQs) creates conflicts of interest, with asset managers arguing it can lead to worse execution outcomes.

Despite these tensions, hedging activity in FX markets surged in 2025. Spot and forward trading volumes increased by 42% and 51%, respectively, compared to April 2022, as investors adjusted hedge ratios in response to U.S. tariff announcements and dollar depreciation according to BIS data. Forwards and options became particularly popular, reflecting the need to manage currency risk in a volatile environment.

Regulatory Impacts on Pre-Hedging Practices

Regulatory scrutiny of pre-hedging has intensified, with European asset managers advocating for stricter rules to prevent market manipulation. IOSCO's guidance, while aiming to harmonize practices globally, stopped short of banning pre-hedging in competitive RFQs-a move that disappointed investor groups seeking stronger safeguards. Meanwhile, dealers face pressure to disclose pre-hedging activities transparently and ensure they align with client interests as highlighted in IOSCO's report.

The CFTC's leadership transition in late 2025, with Michael Selig assuming the chairmanship, also signaled a potential shift in regulatory priorities, adding another layer of complexity to hedging decisions according to Gibson Dunn. These developments highlight the need for investors to stay attuned to regulatory changes that could influence market structure and execution costs.

Conclusion

Navigating global market closures and early closes requires a nuanced understanding of liquidity patterns, strategic timing, and evolving regulatory frameworks. As demonstrated by the 2023–2025 period, investors must adapt their execution and hedging strategies to seasonal volatility, leveraging instruments like receive-fixed swaps and forwards while remaining vigilant about regulatory shifts. By aligning portfolio management with these dynamics, investors can mitigate risks, optimize costs, and capitalize on opportunities in an increasingly fragmented market environment.