SEC Approves First Round-the-Clock Exchange
Say hello to 24/7 equities trading
On 29 November 2024, The Securities and Exchange Commission (SEC) approved the first round-the-clock securities exchange, in a watershed moment for the capital markets industry.
The increased integration of cryptocurrencies and blockchain/digital ledger technology has challenged long-existing equity market paradigms, such as restricted market trading hours and lengthy settlement times.
In addition, the shortening of the security trade settlement period in the US, effective in May 2024, has helped make a round-the-clock exchange a reality. Financial firms dealing in US securities are required to settle trades within one day of the trade date, requiring a mass overhaul of existing infrastructures and business processes in order to improve efficiency. In the process, cross-border trade execution and settlement systems that are conducive to this are materialising and opening up a new world of possibilities, that up until now, have only really been a figment of peoples’ imagination.
One of these possibilities is 24/7 equities trading.
The trading of some assets round the clock is not an entirely new concept. Foreign exchange (FX) markets currently operate on a 24/5 schedule, globally, thanks to the overlapping of different time zones, with futures markets also allowing trading after markets close. After hours market trades are typically completed through electronic communication networks (ECNs) rather than traditional exchanges. Equity trading is consigned only to the market hours of a particular jurisdiction. For example, UK-listed cash equities can only be bought during London’s market trading hours of 08:00-16:30.
By having set hours for trading, stock exchanges ensure there is concentrated levels of liquidity between the market open and close. Extending market hours beyond this time frame could lead to liquidity drying up, raising regulatory concerns as to whether this would actually improve efficiency. It would also require an upheaval of business processes and systems to accommodate 24/7 trading, including changes to settlement teams’ working patterns and the requirement for functional, interoperable order-execution management systems that can meet the demands of round the clock trading.
Another concern is that reduced trading volumes during off-hours could result in less accurate pricing and more volatility for institutional portfolios. Therefore, trading outside of normal hours may not serve the interests of some market players with tighter risk management strategies.
One might question, then, what the point of 24/7 equity trading is, if it seems likely to cause further infrastructural challenges in the same way T+1 trade settlement preparations in the US have. However, 24/7 equity trading could help remove frictions associated with access to different markets. Because of time zone constraints, market participants may be restricted to trading stocks in their local jurisdiction. For example, smaller firms situated in the Asia-Pacific region wanting to trade in US equities without cross-border teams located in the US would struggle to trade in them as their market hours largely fall outside of US market hours.
In addition, 24/7 equity trading could improve market inclusivity. Current equity markets, to a certain extent, exclude retail traders, who may not be able to execute as many trades as they would like due to being occupied in employment roles. Today, retail FX liquidity is taking up an increasingly larger portion of overall market liquidity, with 24/7 equity trading likely to boost this further. 24/7 trading could also allow investors to respond more quickly to market developments
Given the structural enhancement currently afoot in one of the world’s most critical capital markets, adoption of 24/7 equity trading has seemed an inevitable next step for the capital markets industry.
In February 2024, 24 Exchange, a new multi-asset class trading platform, submitted an application to the US Securities and Exchange Commission (SEC) for a license to create a new national securities exchange, 24X National Exchange.
This application has now been approved, with 24X becoming the first fully electronic exchange in the US that allows around the clock trading of securities.
Following the approval, a two-phase implementation plan will ensue, focused on the trading of US equities 23 hours a day. A one-hour operational pause will take place during each trading day to accommodate routine software upgrades and functionality testing. The first stage will open in late 2025 and initially operate during regular weekday market hours before expanding into second-stage overnight sessions from Sunday to Thursday between 8pm and 4am (New York time), once specific data requirements are met.
The new service will enable retail and institutional customers anywhere in the world to trade in US equities via broker-dealers who are approved members of 24 National Exchange. The schedule would effectively allow trading to run from Sunday evening through to Friday evening, creating a virtually continuous market.
Other market participants are also latching on to 24/7 equities trading.
From the institutional side, Charles Schwab offers 24-hour trading for select clients, including all S&P 500 and Nasdaq-100 stocks, and hundreds of exchange-traded funds.
On the retail side, investment app Robinhood currently has a round-the-clock equities trading service. Retail users are able to engage in 24-hour trading of selected exchange-traded funds (ETFs) and popular stocks such as Apple and Tesla. The 24-hour trading service allows round-the-clock trading in 43 securities between 20:00 Eastern Time (ET) on Sundays and 20:00 ET on Fridays. Other entities that offer this feature are Trading212 and Interactive Brokers.
In fact, last year, the CBOE Global markets outlined its expectations for round the clock equity trading to become commonplace by 2027.
For further information, please do not hesitate to contact us at london@greyspark.com with any questions or comments you may have. We are always happy to elaborate on the wider implications of these headlines from our unique capital markets consultative perspective.