FT: Is Wall Street ready to stay up all night?

Although retail trading is big business in the US, where more than half of all households hold stocks directly, developments in mom-and-pop trading habits would normally mean little to the vastly bigger professional world of asset managers and Wall Street brokers, writes the Financial Times.

“But that is changing because of the growing interest in overnight trading from more established quarters. The New York Stock Exchange, the largest in the world, is one of a number of groups which are now looking to offer much longer trading windows.

“This is pushing investment professionals to engage in surprisingly complex debates around the simplest-seeming questions. When, for example, does a trading day begin and end if it runs around the clock? What would be the closing price of a stock — typically the reference point for trillions of dollars in funds — if the day were seamless?

“When the day starts and ends matters to investors everywhere too. Few in the industry want to change the official 4pm close — by far the busiest trading point in the current day because it is used to set the daily reference prices for traded securities, from which the $30 trillion-plus held in mutual and exchange traded funds take their value.

“After the close, an entire system of clearing and settlement also kicks in, ensuring that sellers receive their payment and buyers have their new holdings re-registered under their name.”

What about seclending?

In a previous interview, Finadium examined what securities financing markets can learn from equity markets shifting to 24/5, with Blue Ocean’s president and CEO, Brian Hyndman, stating that there are discussions under way for the DTCC to lengthen hours and open earlier in the five-day week. In a further interview with Flextrade, he noted that in 2026, DTCC is expected to go to 24/5.

Speaking to Finadium, Jeff O’Connor, head of Market Structure for the Americas at Liquidnet, said that extended hours-trading remains more talk than volumes, but there has been growth. Still, he does describe overnight trading as a “cowboy market”.

“There is that threat that overnight you are not going to settle, or the other side isn’t going to clear that transaction. That is the biggest risk and that will temper legitimacy until that is in place,” he said.

With New York Stock Exchange ARCA joining the chorus along with 24X, Blue Ocean and other alternative trading systems (ATSs), O’Connor expects volumes to grow, particularly on the back of strong US performance. Still, institutional volumes remain elusive because 24-hour trading is not a “riskless proposition”, he said.

“Once you get full involvement from [institutional investors], then you have real markets but as of right now, it runs very differently than how the US market runs,” he explained. Currently, in the payment for order flow system, retail brokers face off with wholesalers who take “held” orders which essentially means guaranteed execution. In the off hours, this isn’t the case and the wholesaler can decide if they want to take the order, and then will place on a venue or ATS. In the case of off-hours, the ATS is acting more like an exchange, which is very different then their function during regular trading hours.

What might that mean for a possibility of round-the-clock securities lending? While Liquidnet does not offer stock loan, O’Connor noted that it could expand in that direction as overnight trading attracts real volumes with order book depth: “The adjustment there would be from the big banks who provide a lot of the stock loan liquidity — they would have to adjust their coverage models…But the more legitimate this becomes and it seems like a very obvious area in which it could expand.”

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