More of the jigsaw puzzle pieces are falling into place for near-24-hour stock trading in the US, but not everyone is convinced the proposed start date will be hit.
The National Securities Clearing Corporation (NSCC) said in a filing last month that rule changes necessary to support extended traded hours would be implemented on June 28, subject to approval by the Securities and Exchange Commission.
The latest development comes four months after the operating committees of securities information processors (Sips), which process and disseminate quotes and trade data from exchanges, informed the SEC that they would be ready to support around-the-clock trading on December 6, 2026.
The main US stock exchanges – including Cboe, Nasdaq and the New York Stock Exchange – are projecting an air of confidence that trading hours will be extended on that date.
In my mind, it’s delayed. I don’t see this happening by December 6.
Brian Hyndman, Blue Ocean Technologies
But not everyone is convinced 24-hour trading will arrive this year. Alternative trading systems (ATSs), which now account for half of all US equity market volumes, are far more sceptical about the proposed timeline.
“There’s just a bunch of things here that have to happen,” says Matt Fuchs, executive vice president of market data at OTC Markets Group, which operates the Moon ATS. “It could definitely slip,” he adds, regarding the December 6 target date for extended hours.
Extending stock trading hours requires more than just exchange readiness, says Brian Hyndman, chief executive and president of another ATS, Blue Ocean Technologies. The Sip changes must be approved by the SEC and then implemented and tested.
“The Sip is distributed around the globe by firms like LSEG [London Stock Exchange Group] and Bloomberg, and those firms don’t have any specifications right now on the new 23/5 Sip,” he says. “So, in my mind, it’s delayed. I don’t see this happening by December 6.”
A spokesperson for LSEG confirms that it has “not yet received the final specifications” for the new Sip.
Bloomberg declined to comment.
A number of other outstanding matters must be resolved before stocks can trade around the clock. The industry has yet to define a process for halting trading ahead of complex corporate actions, such as reverse stock splits. Exchanges will also need to review their circuit breakers and limit up-limit down (LULD) mechanisms to ensure they are appropriate for overnight hours, when trading could be more volatile than during the day.
Others are grappling with more practical concerns. At the Financial Industry Regulatory Authority’s annual conference in May, Christy Moccia, chief compliance officer at Clear Street, mused that the biggest problem may be finding “young’uns who are willing to work the overnight session in the US and satisfy the licensing” requirements of Finra.
For these reasons, Khody Azmoon, CEO and co-founder of BLOX Markets, which is developing an ATS for retail customers called Openpool, says December 6 “is not a guaranteed launch date”.
His best guess is that around-the-clock stock trading will start early next year. December 6 coincides with the start of many firms’ year-end code freezes – mandated periods where software development teams pause or halt new deployments. “[This] gives regulators and market participants a legitimate operational basis to consider moving implementation to early 2027,” he tells Risk.net.
Nearly there?
At least one essential part of the US financial market infrastructure is ahead of schedule. NSCC said in its recent rule filing with the SEC that it would be ready to operate 24 hours a day, five days a week from June 28.
Val Wotton, global head of equities solutions at the Depository Trust & Clearing Corporation, which operates NSCC, says the shift will not require market participants to make significant operational changes, beyond connecting to a new Fix engine and ensuring that an additional tag is added to trades in the overnight session.
NSCC is not currently planning any changes to its risk management framework or margin methodology to support overnight trading. That could change if extended hours result in a big increase in volumes. The overnight session currently represents just 1% of total volumes processed by NSCC, with most of the activity being driven by Asian retail investors that place average orders of around $5,000.
“We don’t anticipate any significant institutional volume coming into play in June, but it will be interesting to see what happens when the exchanges and Sips go live, and the potential impact on liquidity overall,” says Wotton.
The thresholds may ultimately need to widen for overnight trading, but it has to be a thoughtful calibration.
Lisa Balter Saacks, Trillium Surveyor
“Once we start to get more price transparency, and if there’s more volatility or wider spreads, then we would consider other margin requirements. We are aware of other CCPs [central counterparties] requiring an additional margin amount to operate in the overnight session.”
The Options Clearing Corporation, which has been clearing index futures and options overnight for a decade, requires firms participating in those sessions to post additional margin equal to the lesser of $10 million or 10% of the firm’s net capital.
“There is some precedent on this, as there are central counterparties that already support 24/5 trading hours,” says Wotton. “But for us, because the overall volume is just about 1%, we are not currently introducing risk management changes.”
The bigger question is how exchanges will adjust their volatility control mechanisms, which pause or halt trading following large price swings, for overnight hours.
The LULD mechanism protocol establishes dynamic price bands for every National Market System stock and serves as a safeguard to halt trading during extraordinary market volatility. LULD during regular market hours has reduced erroneous trade busts, where exchanges are forced to cancel or adjust trades because they were executed at prices that significantly deviate from fair market value, usually due to system malfunctions or fat-finger human errors.
There is currently no official proposal or consensus on how LULD bands should be adjusted for overnight hours.
“You can’t just take daytime parameters and drop them into overnight trading. The liquidity isn’t there, the reference prices are softer, and a band that makes sense at 10am is going to behave very differently at 2am. You’re either going to be triggering halts constantly or generating excessive noise,” says Lisa Balter Saacks, president of trade surveillance and best execution analytics firm Trillium Surveyor.
But the answer may not be as simple as just widening the existing parameters in a one-size-fits-all manner. “If parameters are widened too aggressively just to keep markets moving, the issue doesn’t disappear, it shifts operationally to the surveillance team,” says Balter Saacks.
“From a surveillance perspective, you want to understand how securities normally trade at different times of day and focus on what’s actually abnormal in that environment. The thresholds may ultimately need to widen for overnight trading, but it has to be a thoughtful calibration.”
While few doubt that overnight trading of US stocks will eventually happen, there may not enough hours in the day to implement the Sip changes and figure out solutions for corporate actions and circuit breakers before December 6 rolls around.
Original Article – Link
