Wall Street is at a crossroads.
The sacred opening and closing bells of the New York Stock Exchange (NYSE) seem under scrutiny as the financial world contemplates a bold shift to more active round-the-clock trading.
In late April, the NYSE announced it was seeking market participants’ views for potential 24 hour trading of its listed stocks. No further comments or report has yet surfaced.
This impending move is not just about extending hours but reflects a seismic shift driven by technological innovations and global trading demands, particularly by institutions and large funds. Expanded global trading will have compliance and litigation implications for law firms and corporate law departments of public companies.
In global markets, will coffee be a new currency?
Not fully realized by many, the world’s financial markets currently trade on a 24/7 cycle.
U.S. stocks – Apple, Microsoft, Nvidia, Alphabeta, Amazon, Meta, Telsa, JP Morgan and hundreds more – continue to trade following the sun, even when the NYSE is closed (not unlike most commodities or cryptocurrencies) thanks to dual listings and unregistered securities across international markets.
Today’s global trading challenges the relevancy of traditional U.S. market hours, currently confined to 9:30 a.m. to 4:00 p.m. Eastern Time.
One question jumps out: Why now?
As financial markets evolved, so has the technology enabling them. What was once a futuristic idea – 24-hour trading – is a calculated reaction to escalating demands of global markets, practically inevitable.
Mark Twain famously said, “There is no such thing as a new idea. It is impossible. We simply take a lot of old ideas and put them into a sort of mental kaleidoscope. We give them a turn and they make new and curious combinations.”
The concept of round-the-clock trading isn’t new either.
In 1984, the NYSE first flirted with this idea. As a member of the NYSE Management (policy) and Executive (operations) Committees and chief spokesman, I remember briefing media.
My comments responding to New York Times questions at that time observed, I didn’t think it was a question of if 24-hour trading would come, but when. And additionally, cautioned, round-the-clock trading might not necessarily involve keeping the New York Exchange open day and night. It could involve partnering with other exchanges … or extending trading hours further with technology.
Decades ago, we foresaw a 24-hour trading future, requiring technological innovations, organizational shifts and new perspectives from financial professionals and regulators.
Today, technological readiness is evident and is converging with investor expectations to make this concept not just possible … but essential.
Additionally, the rise of commission-free trading and the dominance of algorithmic trading have radically transformed market dynamics.
Not long ago, the NYSE and Nasdaq, once the concierges and agents of price discovery, captured market share of more than 86% of their listed securities. No more.
Currently, industry insiders estimate that the NYSE and Nasdaq each account for an approximate blended market share of less than 20% of daily trading volume in their listed securities (lowest in most active stocks and highest in least active equities).
Furthermore, both markets trade each other’s listings – and pay for order flow. This extraordinary shift underscores the need for markets to adapt or risk becoming obsolete.
24/7 Trading Might Be Wall Street’s Next Big Move
The NYSE’s exploration of continuous trading reflects a desire to stay relevant and open to investors in a global market that never sleeps.
Extending trading hours could involve several options: split the trading day into segments, such as from 8:00 a.m. to 2:00 p.m. Eastern Time and from 2:30 p.m. to 8:00 p.m. Eastern Time … or a hybrid model, through the night would blend traditional market practices with advanced trading technologies, aiming to offer investors flexibility and align U.S. trading hours with global market activities.
An opportunity to magnify this NYSE metamorphosis occurred on May 28, when a new T+1 clearance cycle took effect, reducing the settlement period for most securities from two business days to one, setting the stage for global players to have more timely control over capital risk and trading positions.
This change aims to attract international investors but presents challenges, especially with time zone differences and cash management. Lawyers are updating contracts, discussing trade failure risks … and preparing for disputes arising from this accelerated timeline.
At all times, markets are risky.
“Dangers ahead, danger behind, but you got danger on your mind,” are lyrics in the Willie Nelson and Tanya Tucker song “Danger Ahead,” a classic country track that explores risk and uncertainty, not unlike financial markets. But despite this, traders are drawn to market excitement, challenge and risk.
The Securities and Exchange Commission (SEC) has overseen a dramatic transformation in trading venues, leading to a fragmented market landscape. While this has spurred innovation and competition, it has also introduced complexities that could undermine market integrity.
Electronic trading networks and a desire to be competitive caused U.S. stock exchanges to allow trading before and after the regular market hours since the early 1990s.
The road to 24/7 trading is already fragmented, with more than 70 U.S. venues trading the same securities. This fragmentation creates opacity, making price discovery a complex and often murky process.
The introduction of high-frequency trading and algorithmic trading has only compounded this issue, with algorithms executing trades at speeds and volumes that dwarf human capabilities.
The potential for increased volatility and diminished price transparency poses significant risks.
Specifically, and simply, look at the volatility in Meta after April earnings, or the unexpected increase in GameStop in June, which shows how prices fluctuate significantly between the market close and the next day's opening, underscoring dangers associated with unregulated after-hours trading.
To address these concerns, regulators could mandate earnings announcements occur before the market opens, reducing the risk of volatile swings driven by late-breaking news.
Alternatively, restricting the reporting of trades for companies that announce earnings after the close could help stabilize pricing and maintain market integrity.
These measures would be essential in preserving the validity of price discovery and preventing erratic price movements.
Individual investor protection in any 24-hour trading process is critical.
The U.S. equity markets stand out globally due in part to robust individual investor participation. That is one reason many non-U.S. based companies list on U.S. markets.
U.S. markets attract global shareholders, as individual investors own more than 35% of equities, as highlighted by the Broadridge 2024 Investor Study. This study found that more than 40 million support this … and highlight investors own an average of eight equities in taxable accounts, twice the holdings of mutual funds and ETFs, reflecting a buy-and-hold strategy for life expenses.
Lawyers, more than many, recognize with such significant participation, ensuring transparency, regulatory oversight and equal access to trading information is critical to protecting client’s interests and maintaining market integrity.
Can Wall Street adopt 24/7 trading, perform for investors, stay relevant and profit?
The NYSE's push towards round-the-clock trading isn’t an evolution—it's a seismic shift to participate in global financial market in perhaps new ways.
As traditional trading hours become a relic, the industry faces a critical challenge: balancing innovation with market integrity.
NYSE leadership is demonstrating sound judgement and must stage alternatives and transition into 24/7 trading revolutionize U.S. market and open new opportunities. But they will also be wading into dangerous waters.
At its core, there are three crucial questions, can Wall Street meet the needs of investors; turn a profit with extended hours … and establish a process that the SEC will authorize?
Resolve these issues … and everything else falls into place.
Published October 2, 2024.
