Traders Face Longer Trading Hours Ahead
This year has seen significant developments in trading hours, with one of the most notable being CME Group’s switch to continuous trading for its crypto futures and options in May. This change, which only includes a weekly maintenance break, brings regulated institutional derivatives closer to the way the underlying crypto market trades.
The demand for weekend trading is evident, with CME reporting that its first six weekends generated $1 billion of crypto futures/options volume. Additionally, the average daily volume of crypto derivatives in the first half of the year was up 44% year-on-year to 280,000 contracts.
Regulatory Support for Extended-Hours Trading
The SEC has become more supportive of extended-hours trading, with Commissioner Hester Peirce noting that the commission has approved changes to extend the operating hours for US equity securities information processors. This move addresses the issue of having an overnight market without the normal consolidated market data and clearing infrastructure.
The SEC has also approved modifications to implement the market-wide limit-up-limit-down plan during extended hours, which prevents individual stocks and ETFs from trading outside specific upper and lower price bands. These changes are a step towards formalizing a 23-hour market for US equities.
24X is targeting a December date for its expanded session, while CME is winding down its plan for 24/7 markets over weekend staffing concerns. Meanwhile, Vlad Tenev, CEO of Robinhood, has announced plans to bring 24/7 stock trading to the US, with the company already offering selected stocks and ETFs 24 hours a day, five days a week.
The growth of retail trading is a significant factor in the push for extended-hours trading, with Robinhood‘s overall equity trading volume reaching $335 billion in August, up 68% year-on-year. This growth demonstrates a rapidly growing customer base capable of supplying overnight demand.
In the FX market, 24 Exchange’s Non-Deliverable Forward (NDF) business has seen significant growth, with average daily volume reaching $9.5 billion in July, up 139% year-on-year.
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Challenges and Concerns
The shift to extended-hours trading is not without its challenges and concerns. Commissioner Peirce notes that many market participants have expressed ambivalence about the shift, citing concerns about thinner order books overnight, wider spreads, and increased price volatility.
The SEC has also flagged concerns about the potential for greater short-term volatility due to the combination of increased access and reduced liquidity. As the market continues to evolve, knowing when and where liquidity is available will be the key competitive advantage, rather than simply having access to a market.
SEC Chairman Paul Atkins states that continuous trading could allow investors to respond more quickly to events and reduce risk that accumulates overnight. The contrast between overnight and regular session volumes suggests that this transition is still in its early stages, with 144.6 million shares and $7.4 billion of US overnight equity trading in August compared to much higher regular session volumes.
The 24 Exchange reported about 8.64 million shares on October 2, with significant activity in leveraged ETFs such as SOXL and SOXS, as well as highly volatile smaller stocks like Nvidia. This suggests that the early 24-hour equity market is disproportionately a market for traders who have a reason to trade immediately.
Robinhood is expanding its offerings to cater to the growing demand for extended-hours trading. The company has announced plans to become the first US broker to allow trading of American stocks on Saturdays, as well as launching prediction markets for company earnings.
Robinhood‘s existing overnight trading hours, from 8 pm to 4 am ET, have already shown significant activity, particularly in leveraged ETFs and highly volatile stocks.
Market Implications
However, the growth of extended-hours trading is driven by the increasing demand for flexibility and accessibility in the markets.
