Will 24/7 Equities Trading be a 'thing'?
An inevitable next step for the capital markets industry?
Globally, capital markets are in a state of transition, fuelled by a combination of rapid technological advancements and more stringent regulatory agendas.
For example, 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, is spurring change. Financial firms dealing in US securities will now have to settle trades within one day of the trade date, requiring a mass overhaul of existing infrastructures and business processes. In the process, cross-border trade execution and settlement systems will likely become more efficient and dynamic.
Collectively, this is laying the foundations for increased market efficiency and is 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. Although talk of 24/7 equity trading has been around for several years, it has yet to come to full fruition: now there are signs that it is becoming a reality.
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 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.
One might question, then, what the point of 24/7 equity trading is, if it seems likely to cause further infrastructural headaches in the same way T+1 trade settlement in the US has. 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.
Nevertheless, given the structural enhancement currently afoot in one of the world’s most critical capital markets, adoption of 24/7 equity trading seems like an inevitable next step for the capital markets industry, with early iterations of 24/7 equity trading among capital markets firms now evident.
Recently, 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. If approved, 24 Exchange will be the first fully electronic exchange in the US that allows around the clock trading of securities. According to 24 Exchange CEO and founder Dmitri Galinov, 24X National Exchange would facilitate around-the-clock trades in US equities for retail and institutional traders anywhere in the world via broker-dealers, who would be registered members of the Exchange. The SEC’s verdict on 24 Exchanges’ round the clock exchange could give a strong indication as to if and when 24-hour equity trading trend will become a widespread phenomenon in capital markets. Last year, the CBOE Global markets outlined its expectations for round the clock equity trading to become commonplace by 2027.
In addition, 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.
It remains to be seen as to whether equities markets will resemble other round the clock markets such as foreign exchange and cryptocurrencies. There is no doubt that the structural foundations are being put in place for equities markets to make this transition, with the new settlement period on the horizon. However, there are still some regulatory and technological challenges standing in its way. The SEC’s verdict toward 24 Exchange will likely give a good indication as to the state of play in the adoption of 24/7 equities trading.
Do you think 24/7 equities is an inevitable next step for the capital markets industry? Leave your thoughts in the comments below.