24/7 equity trading is coming. Are you ready? 

3 weeks ago

With the rise of cryptocurrency and retail trading apps like Robinhood, 24/7 trading has been a growing trend, want to buy a coin named after a Pokémon at 3:00AM on a Sunday, Crypto exchanges have you covered.  

However, one asset class has been trying to resist the change and keep it ‘old school’ equity. Trading only occurs when the stock exchange is open. For example, the NYSE opens trading between 9:30 am and 4:00 pm Eastern Time, Monday through Friday, excluding market holidays. 

While after-hours trading options and dark pools are available, they come with lower liquidity and higher volatility.  Plus, those trades are the “official” trades as stamped by the exchange, which could spook a whole class of investors. 

Why do trading hours exist?

In a world where you can order anything at any time to be at your door within 30 minutes, it feels very odd that the most capitalistic of all activities, buying and selling stocks, is limited to such traditional business hours. 

This alignment with classic hours facilitates maximum participation by both individuals and institutional investors, ensures sufficient liquidity and stable trading conditions, and gives time for the exchange to process all the information before the next trading day begins, accommodating global market interactions. 

But change is in the air.  

The NYSE is asking market participants about 24/7 trading, and 24 Exchange is seeking approval from the SEC to conduct round-the-clock trading. 

Is it a good idea? Is it a bad idea? It doesn’t matter because it’s happening, and if you’re not ready, you might end up on the wrong side of the trade. 

Change is in the air. 

The impact 

Change won’t happen overnight. The U.S. Securities and Exchange Commission (SEC) oversees the rules for trading hours. It’s not just a matter of the NYSE waking up one day and deciding to extend the hours. 

Companies do have some time to prepare for the upcoming change but given the time it takes to change processes and IT infrastructure, it’s better to get ahead of the situation.  Here’s what the immediate impact of 24/7 trading will be: 

  • Increased volatility – With trading opened around the clock, there will be no buffer between an important event and stock prices. 
  • Reduced liquidity – while overall trading volume might increase, liquidity could become thinner at certain times, especially during what are currently off-hours, leading to larger bid-ask spreads and less efficient price discovery.
  • Stress on operations – Continuous trading would require financial firms to operate on a 24/7 basis, increasing operational costs and demanding more robust technological infrastructure to handle the continuous flow of trades. 

What does this mean for financial institutions? 

Here are the 3 biggest changes coming will be: 

  • Need for good order book rebuilding capabilities – as there is no longer an “open” and a “close,” rebuilding the order book must now be a continuous process, requiring a software infrastructure that can work on the stream of orders. 
  • Can no longer rely on overnight processes – Because there are no off-hours, processes allowed to run overnight must be done on demand at any point. 
  • Impact on strategies – The need to be able to react to global events immediately and no longer at the “open” on the following day means the IT needs to be able to process information faster and with less lag 

What you can do 

While there’s no reason to panic, as the SEC is not known for its celerity, ignoring this trend seems like a dangerous path, especially since IT infrastructure projects have a big tendency to have unexpected costs and delays. 

Here are some actions you can take now to stay ahead of the curve: 

  • Measure your ingestion capabilities – how much data can you store and process continuously? Since you will no longer have a rest period, you might have to audit your system to see if it can handle continuous ingestion and not be sized up to store “a day of data and then historize it.” 
  • Identify batch processes – what are the batch processes you rely on, how long do they run, and will this create a problem for trading? What is preventing these processes from being streamlined? 
  • Orderbook rebuilding capabilities – can you rebuild the orderbook at any point of the day? What will the business impact be of working with a stale order book? 

The IT infrastructure does not necessarily need to be sized up; however, it’s very likely some updates will be required, especially regarding database management systems and stream processing. 

Now is the time to evaluate your tech stack and ensure you’re prepared for 24/7 trading. 

Want to get ahead of the curve?  

Book a call with Quasar to discover how you can prepare for 24/7 trading.  

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