This paper examines the shift towards extended trading, particularly in equity markets, and the implications for exchanges, market participants and policymakers. It begins by defining extended trading as the ability to trade nearly 24/7, typically across 22 or 23 hours a day, five days a week. The paper traces the evolution of trading hours, highlighting how electronic trading has enabled longer sessions. It then considers the motivations for adoption, including growing demand from both retail and institutional investors to access well-regulated markets domestically and internationally, similarly to what already happens in some derivatives markets.
The main focus of the paper is the practical challenges that exchanges, clearinghouses, market participants and regulators must address. In particular, it examines:
- Market Considerations
- Extended trading may affect liquidity and price formation, however, experiences in other markets suggest there will continue to be peaks and troughs around ordinary business hours.
- Liquidity may be thinner overnight so bid-ask spreads may be wider. Brokers should be required to disclose this to retail investors.
- Market controls like circuit breakers, kill switches, and pre-trade controls must operate continuously with senior oversight and escalation protocols.
- Markets will still likely require a daily closing or reference price for benchmarks, settlements, and corporate actions. Solutions include a “virtual close” or short scheduled closures.
- Extended trading could grow on-exchange volumes for the benefit of the wider market through improved price discovery, better allocation of capital.
- Operational and Technological Considerations
- Brokerage firms, exchanges and clearinghouses will need to adapt infrastructure to support high availability and near-zero downtime.
- Human oversight will be required. Possible models include follow-the-sun staffing, shift rotations, and regional hubs to handle incidents, surveillance, and escalations.
- Extended trading complicates trade dates, regulatory filings, and corporate actions. Potential solutions include administrative cut-offs, designated “virtual closes,” or maintaining short closure windows.
- Post-Trade Considerations
- Extended trading increases complexity for clearing, margining, and settlement.
- Market participants must adapt systems to handle 24/7 data feeds and post trade processing, strengthen supervisory frameworks to cover round-the clock activity, and manage risks associated with low-liquidity periods.
- Real-time margin recalculation and funding access outside normal banking hours are required.
- Solutions may include prefunded margin buffers, arrangements with foreign banks, or extended payment system hours (e.g., the US Fed considering 22x7x365 Fedwire or Brazil’s instant payment system, PIX).
The paper concludes that successful implementation of the above requires a coordinated effort across the entire financial ecosystem. One day, we may see “true” 24/7 markets which would require more extensive changes to systems, staffing models, governance frameworks, and coordination mechanisms across the entire financial ecosystem (similar to the move to T+1). This evolution is both technologically feasible and increasingly aligned with the demands of certain market segments. Extended trading may not be desirable, beneficial, or inevitable in all markets. Finally, discussions should be focused on how to achieve such a model in a manner that protects investors, strengthens market integrity, and enhances global competitiveness.
