Will ‘Clocking Off’ Become a Distant Memory for Traders?
There have been a number of key developments around trading hours this year. Perhaps the most significant of these was CME Group switching its crypto futures and options to continuous trading in May, with only a weekly maintenance break, bringing regulated institutional derivatives much closer to the way the underlying crypto market already trades.Weekend Trading Demand Is HighThere is evidence of immediate demand: CME says its first six weekends generated $1 billion of crypto futures/options volume, while H1 crypto derivatives average daily volume was up 44% year-on-year to 2,80,000 contracts.This is an example of increased trading hours not simply producing the same volume spread more thinly. Weekend and overnight trading is creating additional risk management activity, particularly when crypto moves sharply outside US hours.At the regulatory level, the SEC has become considerably more supportive of extended-hours trading.Speaking at a roundtable on preparations for 24-hour trading last month, Commissioner Hester Peirce noted that the commission had approved changes to extend the operating hours for US equity securities information processors and approved modifications to implement the market-wide limit-up-limit-down plan during extended hours.(This is a market regulation mechanism in US equity markets that prevents individual stocks and ETFs from trading outside specific upper and lower price bands.)These moves go some way towards addressing the problem of having an overnight market without the normal consolidated market data and clearing infrastructure. 24X is also targeting a December date for its expanded session.CME is winding down its plan for 24/7 markets over weekend staffing.@lighter_xyz founder & CEO @vnovakovski says that back in traditional finance, his friends looked forward to weekends while he just wanted the markets open.That impatience, he says, is part of why people love onchain finance: markets that never close have always been part of the ethos.The Niche Is Becoming NormalThe US equity market is now moving from an experiment in extended hours towards something much closer to a formal 23-hour market. But overnight equity volumes remain low relative to the regular session.The SEC's September analysis found that in August, overnight equity ADV was 144.6 million shares or $7.4 billion, down 27% month-on-month in shares and 32% in dollar volume.The SEC also says extended-hours trading remains less than 1% of total NMS stock trading and is heavily concentrated in a small number of stocks.It is important to note that overnight liquidity is thinner, more fragmented, characterised by wider spreads, more volatile, more dependent on automated market making and concentrated in highly liquid/volatile securities.The SEC has explicitly flagged concerns about thin order books, wider spreads and increased price volatility overnight, posing questions such as how firms can ensure proper supervision and surveillance of trading and risk during overnight hours and whether issuers need to monitor trading in their shares overnight in case of extreme market moves.24X volume data illustrates the concentration. On 2 October, it reported about 8.64 million shares, with significant activity in leveraged ETFs such as SOXL/SOXS, Nvidia and highly volatile smaller stocks.That suggests the early 24-hour equity market isn't simply an extension of normal institutional trading – it is disproportionately a market for traders who have a reason to trade immediately.VLAD TENEV SAYS ROBINHOOD $HOOD IS BRINGING 24/7 STOCK TRADING TO THE U.S.Robinhood is expanding its offerings for active traders with three major developments:- Plans to become the first U.S. broker to allow trading of American stocks on Saturdays - Launching prediction markets for company earnings, allowing traders to trade and hedge around EPS and revenue results - Introducing eight crypto perpetual futures through its global Bitstamp exchange infrastructureBrokers Are Long In This 24/7 MarketIf we look at individual platforms, Robinhood has been particularly aggressive. It already offers selected stocks and ETFs 24 hours a day, five days a week, with overnight trading from 8 pm to 4 am ET, and has announced plans to roll out 24/7 trading in selected equities.That is important because it potentially changes when retail investors trade rather than simply adding institutional overnight liquidity. Robinhood's overall equity trading volume illustrates the scale of the retail market behind this: August equity notional volume was $335 billion, up 68% year-on-year, with average daily equity volume up 68%.It would be misleading to attribute that growth specifically to 24-hour trading on the basis that Robinhood doesn't publish enough data to reach that conclusion. However, it demonstrates that there is a rapidly growing customer base capable of supplying overnight demand.FX is useful as a comparison because it already operates essentially around the clock during the working week. An interesting development here is 24 Exchange's NDF business, whose average daily volume reached $9.5 billion in July (up 139% year-on-year) before easing to $8.29 billion in September.That isn't proof that round-the-clock trading caused the growth, but it demonstrates an important characteristic of increasingly electronic markets – activity can migrate geographically rather than simply disappearing when the traditional financial centre closes.For example, an Asian currency event can generate trading during Asian hours, at which point European participants can then take over while US participants become active later. The result is that the market becomes a sequence of overlapping liquidity pools rather than one dominant trading session.Last month, SEC Chairman Paul Atkins stated that continuous trading could allow investors to respond more quickly to events and reduce risk that accumulates overnight, noting that waiting to adjust a position until the clock strikes 9:30 on Monday morning may beget missed opportunities or additional risk.But there is a counter-effect. More continuous trading doesn't necessarily mean better liquidity, so the combination of increased access and reduced liquidity has the potential to generate greater short-term volatility.Commissioner Peirce suggests that many market participants have expressed ambivalence about the shift to extended-hours trading. She says they often see it as an inevitable complication rather than an exciting new opportunity and are concerned about thinner order books overnight, wider spreads (and the resulting increased price volatility), as well as compressing back-office operations such as overnight batch processing cycles or critical IT maintenance.The upshot is that we are moving towards markets where different types of liquidity dominate at different times, which means the key competitive advantage may increasingly be knowing when and where liquidity is available rather than simply having access to a market.The contrast between 144.6 million shares/$7.4 billion of US overnight equity trading in August and the much higher regular session volumes is probably the cleanest evidence that this transition is still in its early stages.