Wall Street is turning on the “open late” sign.
Stocks have for decades primarily traded in the U.S. within the six and a half hours that the market is open each day during the week.
Bookended by the opening and closing bells of the New York Stock Exchange and Nasdaq, the trading day is often frenetic. Individuals and institutions swap billions of shares worth trillions of dollars with one another at speeds often measured in fractions of seconds. And then, at 4 p.m. Eastern Time, it all essentially comes to a standstill. Some trading occurs in the hours immediately after, but, in effect, the closing bell forces investors and traders around the world to press pause on their bets and hedges on U.S. equities for the remainder of the day.
Until now, that is.
The stock market—just like a restaurant that recognizes the allure of a cheeseburger and fries at 1 a.m.—has partly opened for trading 24 hours a day.
Investors with a case of the stock-trading munchies can now buy and sell certain U.S. equities overnight through broker-dealers subscribed to a new alternative trading system that officially launched out of beta on Tuesday. Open from 8 p.m. to 4 a.m. ET, five days a week, Blue Ocean Technologies’ ATS (alternative trading system), known as BOATS, allows trading in what had previously been an hours-long void that existed between the end of the stock market’s after-hours session and the beginning of the next day’s premarket one—a move that president and COO Brian Hyndman sees as one of the first in a broader push to allow U.S. stocks to trade at any time of day, hopefully with ease.
“There’s no reason, in this day and age, that we shouldn’t give investors the ability to manage their risks 24 hours a day,” Hyndman, who previously spent more than a decade as a Nasdaq executive, tells Fortune.
Once a slow-rolling movement rebuked by many on Wall Street, the campaign to extend the market’s hours of operation has caught new wind in recent years. E*Trade and TD Ameritrade have offered customers the ability to trade a handful of equities 24 hours a day for several years now. Blue Ocean hopes to do the same, but on a far greater scale. Currently, the ATS allows its broker-dealer clients, who cater to both retail and institutional investors, to trade a growing but select menu of equities, says Hyndman. Blue Ocean plans to offer trading to the member stocks of the S&P 500 and other major indexes soon, he says.
And it’s not just Blue Ocean that is behind the calls for a never-ending trading day.
In a coincidentally timed announcement on Tuesday, 24 Exchange, which currently deals in the foreign-exchange and cryptocurrency markets, revealed that it has begun applying for a national securities exchange license with U.S. regulators. Led by longtime electronic-trading executive Dmitri Galinov, the Bermuda-based exchange wants to offer stock trading 24 hours a day, seven days a week, 365 days a year—including holidays—an ambition it thinks will be particularly appealing to individual investors who have become accustomed to trading assets such as crypto whenever they please: 24 Exchange expects to complete its application with the Securities and Exchange Commission in the coming weeks, which would kick off a months-long review period that may last well into 2022.
There’s one very big downside of overnight trading, though: the lack of liquidity.
While 24-hour trading will surely attract the attention of international investors, the market is still bound to see a smaller pool of people trading in the latest hours of the night or the earliest parts of the morning. That is likely to make trading vastly different from what investors experience during the day. E*Trade and TD Ameritrade warn as much in the details of their overnight-trading offerings, saying that greater price volatility, lower levels of liquidity, and wider bid-ask spreads are all possible.
Even in the after-hours sessions that come right after the 4 p.m. close, trading is “not efficient, and it’s certainly not orderly,” Mehmet Kinak, who is the global head of systematic trading and market structure at Baltimore-based investment giant T. Rowe Price, tells Fortune. “I can’t imagine what it would look like on a weekend at 2 a.m.”
Kinak has even called for 30 minutes to be carved out of the U.S. stock market’s current hours, considering how much activity is consolidated around the open and close. In contrast, the push for 24-hours-a-day stock trading, in Kinak’s eyes, represents a direct conflict with the very reasons why the market is open for certain hours: to aggregate liquidity, create order-by-order competition, and to lead to better prices.
“When you take it to 24 hours, weekends, holidays—essentially, it’s a casino at that point,” Kinak says.
Neither 24 Exchange’s Galinov nor Blue Ocean’s Hyndman seems to have any illusions about how a stock would trade at, say, 3 a.m., versus 11 a.m.
Blue Ocean, for its part, is limiting the number of securities trading on BOATS to try to concentrate liquidity, Hyndman says. The ATS is also working with market makers and liquidity providers to create a two-sided market. Blue Ocean already names Virtu Financial and Jane Street as some of its clients. And for Galinov, the need to provide investors with a way to trade when they need to—whether it be in response to a Saturday tweet from Tesla CEO Elon Musk or a U.S.-listed company imploding in Asia late in the evening U.S. time—is paramount to proper risk management. Even if that does mean potentially worse trading conditions.
Underscoring the efforts from both companies is the growing realization on Wall Street that financial markets are more efficient and global than ever before. The rise of asset classes like cryptocurrencies that trade on a continual basis has forced banks, broker-dealers, and trading shops to finally address the question many had years ago of how to operate a trading desk 24 hours a day, which, in turn, has potentially positioned them well for what’s to come in U.S. equities.
“The appetite is growing,” says Larry Tabb, head of market structure research at Bloomberg Intelligence, of nonstop trading. “Increasingly, the world’s becoming a more global trading place. And whether we like it or not, there’s going to be people at two o’clock in the morning trading.”
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