US SEC approves first 24-hour stock exchange for round-the-clock trading

Start-up 24 Exchange will initially operate during standard trading hours before extending to a nightly session

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The US Securities and Exchange Commission (SEC) has approved the establishment of a 24-hour stock exchange, marking a significant milestone in global financial markets. The approval, granted on Thursday, November 28, paves the way for round-the-clock trading.

 

The start-up 24 Exchange, backed by Steve Cohen’s Point72 Ventures, received the green light for its two-phase plan. The exchange will initially operate during standard trading hours before extending to nightly sessions. Eventually, it aims to offer continuous trading from Sunday to Thursday after implementing the required market infrastructure, according to The Financial Times.

 

Nonstop trading: opportunities and challenges

 

While assets like Treasuries and major currencies are already traded almost continuously during the week, stocks have lagged due to stringent regulations designed to protect investors and the complexities of trade settlement.

 

Proponents of nonstop trading argue that it allows investors to respond quickly to market-moving news outside standard hours. However, critics warn of risks such as reduced trading volumes during off-hours, which could result in less accurate pricing.

 

The demand for continuous trading has surged in recent years, particularly with the rise of retail investors accustomed to the 24/7 cryptocurrency markets. The pandemic accelerated growth in off-exchange overnight trading, with platforms like Robinhood and Interactive Brokers enabling users to trade US stocks beyond traditional hours.

 

Increasing competition for night-time trading

 

The New York Stock Exchange recently filed an application to extend its trading hours to 22 hours daily, signalling growing competition in this space. Unlike alternative trading systems, such as Blue Ocean’s, which operate in “dark pools” with non-public pricing, 24 Exchange plans to establish a “lit” market. This setup ensures that trades and prices are publicly recorded, potentially improving pricing for investors. However, it also raises concerns about unintended price impacts during low-volume hours.

 

Risks in 24x7 trading

 

Experts have raised concerns about potential volatility in overnight trading. Even small-volume trades could disproportionately affect prices, creating risks for institutional investors managing large portfolios.

 

The industry body Sifma is reviewing the SEC’s 106-page approval order, having previously recommended a broader analysis of the implications of round-the-clock trading.

 

24 Exchange must now collaborate with competing exchanges to integrate its trading data into the consolidated market tape and finalise operational plans for its overnight session. This approval follows a revised application that addressed concerns from its initial 2023 submission, which had proposed weekend trading as well.

 

A new era in stock trading

 

This initiative represents a transformative shift in stock trading practices, catering to the evolving needs of modern investors. It underscores the growing appeal of continuous trading in global markets, driven by the changing dynamics of investor behaviour and technological advancements.  (With agency inputs)