Over the past few months, we’ve seen a significant amount of commentary about the push toward overnight trading on US markets. It’s important that the steps we take toward real-time trading be taken deliberately, and that all stakeholders be given ample opportunity to have their opinions heard.
But I want to be very clear about one point: Overnight trading on major US exchanges may eventually become reality. There is too much at stake and too many new opportunities waiting to be revealed for us to reach any other outcome. To use one region as an example, brokerage accounts in Asia-Pacific currently hold more than $3.4 trillion in U.S.-traded equities. Offering these participants real-time overnight trading opportunities will only increase their interest in and holdings of these stocks and funds.
So let’s consider recent developments in this topic, how we arrived at this point and the key benefits to be gained from transitioning to overnight trading.
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The journey so far
For many observers, the issue of real-time overnight trading bubbled to the surface in 2024 when an overnight system run by a US-based broker-dealer suddenly crashed during a market sell-off. Thousands of trades were cancelled, making headline news around the world.
Naturally, this problem caught the attention of other exchanges, and they moved quickly to seize the massive opportunity. Just a few months later, in October 2024, the New York Stock Exchange announced plans to extend its trading day to 22 hours. NYSE’s announcement was followed by similar proposals from Cboe, with plans to offer trading 24 hours a day, five days a week, and NASDAQ’s intention to provide 24-hour trading.
But in March of this year, the journey hit a bump in the road. The US Securities Information Processor (SIP), which collects and distributes real-time stock-price data, failed to approve the exchanges’ proposals. To some stakeholders, this setback highlighted the various hurdles that must be cleared before overnight trading is ready for prime time. Some of these include:
- Reconciling the differences in trading hours proposed by the exchanges
- Updating legacy systems so that the SIP can quickly manage and record transactions without the benefit of the pause in the trading day that currently exists
- Obtaining accurate market data, with the SIP needing to extend its hours to overnight to ensure all trades include real-time National Best Bid Offer
A history of innovation
I don’t want to use this space to argue point by point how these challenges can be overcome. But I will discuss in general key concepts that I believe will lead to the inevitable shift toward real-time overnight trading.
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By GlobalDataFirst, the foundational principles of securities trading have not changed over the years: attracting sufficient market liquidity to ensure accurate price discovery underpinned by transparency of quotes, prices and other data. But, certainly, the methods for bringing these principles to life have changed.
The evolution of electronic trading was highlighted by milestones such as the launch of NASDAQ’s computerized quotations in 1971 and the emergence of communication networks like Instinet in the 1990s. Since then, electronic trading has come to dominate the industry — but getting it right was a massive challenge.
Billions of dollars have been invested in technology. Counterparties had to become accustomed to a new paradigm that relied less on interpersonal relationships built over many years. Regulators had to rewrite the rulebook with new laws and methods for monitoring trading activity. But we succeeded.
The same will happen with overnight trading. This spirit of embracing change and championing innovation will drive compromise on issues such as standardised trading hours. And the long-term vision of the industry will spur the necessary investments in system upgrades needed to facilitate this transformation.
Get ready for the flywheel effect
As large exchanges such as NYSE, NASDAQ and Cboe join the party, they will bring in massive amounts of new liquidity. This could benefit a broad range of market participants by tightening bid-ask spreads and making the overnight markets more efficient. Thus begins what I like to think of as the flywheel effect. While it may require a significant amount of energy to start a flywheel moving, once it’s moving less and less energy is required maintain its momentum. The system feeds itself.
Enhanced liquidity will entice more institutions, such as investment banks and hedge funds, to overnight trading, when they and their clients can benefit from arbitrage and hedging strategies that simply are not available in today’s pre-market and post-market trading sessions.
And as we’ve witnessed many times in the past, when institutions make a move, retail investors follow. With more retail investors worldwide trading U.S. securities in real time, then the flywheel will really spin with gusto.
It’s reasonable to expect the current volume of overnight trading on US markets — which currently stands between $900m and $2bn every night (notional value) — to experience double-digit growth for many years to come.
A rising tide
As someone who is based in India and has been working with stakeholders in financial services across Asia-Pac for many years, I’m particularly excited about the possibility of low-cost overnight trading on U.S. exchanges. Not for me, necessarily, but for the millions of small investors living in these time zones.
The US is home to some of the world’s largest and most liquid financial markets. Giving people worldwide access to real-time trading in these markets can unlock new wealth streams for them. It would also meet the demands of young investors. We’re in the midst of the great global intergenerational wealth transfer, with more than $84 trillion changing hands through the year 2045. These younger people have grown up in a digital world, with 24/7/365 access to almost anything they desire. As an industry, it’s our responsibility to make sure they have the same type of opportunity to trade US securities.
And imagine pairing this access with embedded finance tools. Consider a future where a widowed mother in Bangladesh can invest in fractional shares of US stocks every time she uses an app to purchase her daily needs. Round up every purchase to the nearest taka and deposit a few poisha in a brokerage account for her to acquire stock that grows in value over time.
I’m passionate about this topic because I believe real-time overnight trading has the potential to uplift not only the global financial services industry, but also millions of small investors everywhere. So, let’s get that flywheel spinning and see where it takes us.
Laksh Gangwani, chief growth officer at ViewTrade
