24/7 Trading Is Coming. But Is It a Good Thing?
News Summary
U.S. stock markets are gradually moving towards extended trading hours, potentially nearing a 24/7 model, driven by technological advancements, shifts in regulatory attitudes, globalization, and investor demand. The new SEC-approved 24X National Exchange will launch on September 29, initially trading U.S. equities from 4 a.m. to 8 p.m. ET on weekdays. Nasdaq and NYSE also plan to introduce extended trading windows by 2026. The main benefits of extended hours include greater convenience for retail and international investors to manage portfolios at their leisure and react swiftly to breaking news events such as earnings releases, leadership changes, trade deals, or economic data. However, the article highlights significant drawbacks including lower liquidity leading to wider bid-ask spreads, increased market volatility, the risk of emotional trading, and difficulties in price discovery. Furthermore, many brokerages still impose trading restrictions during non-traditional hours, such as accepting only limit orders or not supporting fractional trading on all securities. Despite these challenges, market infrastructure, including SIPs and clearing houses, is adapting to accommodate longer trading hours, signaling an impending "seismic shift."
Background
Traditional U.S. stock market hours are 9:30 a.m. to 4:00 p.m. ET. However, with the proliferation of electronic trading and globalization, after-hours trading has become increasingly common. For years, there have been growing calls to extend trading hours to accommodate the 24-hour news cycle and the needs of international investors. The SEC and CFTC have made extended trading a joint priority, reflecting regulators' openness to the evolution of market structure. This news discusses the specific efforts and challenges faced by various exchanges and infrastructure providers in this context, as they work towards near round-the-clock trading.
In-Depth AI Insights
What are the deeper implications of extended trading hours for market efficiency and investor fairness? - On the surface, it increases market access and responsiveness, enhancing immediate pricing efficiency for breaking news. However, during less liquid off-peak hours, price swings can be amplified by a few large trades or algorithmic activities, potentially distorting "true" price discovery. - For retail investors, while convenience increases, their disadvantages in information access, analytical resources, and trade execution costs could be further exacerbated during extended hours, widening the fairness gap with institutional investors. - Furthermore, the risk of emotional trading is higher, especially in the absence of full information or regulatory oversight, potentially leading to irrational decisions that harm long-term portfolio performance. What are the strategic motivations behind major exchanges and regulators pushing for this change? - Competitive Pressure: Facing the rise of 7/24 trading in cryptocurrency and emerging tokenized asset markets, traditional exchanges are under pressure to maintain competitiveness and relevance, aiming to attract and retain a broader global investor base. - Profit Opportunities: Extended trading hours can generate new trading volumes and potential fee revenues, and potentially attract more international capital flows. - Technological Evolution: As trading technology and infrastructure mature, the technical barriers that previously limited 24/7 trading have significantly reduced, making this shift operationally feasible. - Regulators may believe that longer trading windows could reduce the risk of non-public information being exploited in after-hours trading and better integrate U.S. markets into the global financial ecosystem. Under the Trump administration, what unstated regulatory or political considerations might this market structural change face? - While not directly mentioned in the news, the Trump administration generally favors deregulation to foster market dynamism. Thus, the SEC and CFTC prioritizing extended trading could align with the current administration's broader policy of encouraging innovation and reducing restrictions on market activities. - However, any policy that increases market volatility or potential investor risk could become politically contentious. If extended trading leads to significant market disruptions or substantial losses for retail investors, regulators and the government might face public scrutiny and pressure to adjust policies. - Furthermore, given global geopolitical uncertainties, a round-the-clock market might react more swiftly and drastically to sudden international events, which is both an advantage and a potential source of new systemic risks, requiring closer attention from the government and regulators.