SEC Approves Exchange for "All" Day Trading
Commentary by Glen Barrentine
The SEC approved the application for registration of 24X National Exchange LLC, a fully automated electronic trading platform for listed NMS stocks that would operate 23 hours per day, five days per week.
According to the SEC Order, the Exchange will operate three different trading sessions that span from 4 a.m. to 7 p.m. on each US business day: (i) a "Core Market Session" between 9:30 a.m. and 4 p.m.; (ii) a "Pre-Market Session" between 4 a.m. and 9:30 a.m.; and (iii) a "Post-Market Session" between 4 p.m. and 7 p.m. The Exchange will also operate a fourth trading session, the "24X Market Session," which will operate between 8 p.m. and 4 a.m. Sunday, Monday, Tuesday, Wednesday and Thursday nights that precede a US business day.
In a joint statement, Commissioners Hester M. Peirce and Caroline A. Crenshaw characterized the decision as "a first step toward permitting, for the first time, overnight trading on a national securities Exchange." They argued that an overnight session "could make trading more convenient for investors both in the [US] and abroad" and "potentially will draw more participants into our markets." They also pointed out that the Exchange's rules include "additional disclosures to investors regarding the risks of trading in the overnight session" and that trading would not commence until "the Equity Data Plans are in concurrent operation."
The Commissioners acknowledged challenges raised by commenters, including operational and regulatory adjustments. They noted that market participants may face questions on issues such as "clearing, settlement, margin, and application of Commission and FINRA rules, and investor protection issues related, for example, to potentially lower liquidity and higher volatility during overnight trading." They stated, however, that "[t]hese issues should not impede our approval of the Exchange's application." They suggested the SEC consider further public input through a roundtable and/or an open comment file to address outstanding questions.
Commentary
Trading by 24X National Exchange outside the 4 a.m. to 7 p.m. window is dependent upon the equity data plans making changes that would facilitate overnight trading.
This means that it may be some time before we see overnight trading in the US. Assuming overnight trading in the US does actually happen, it will be interesting to see whether the Exchange can capture a meaningful share of overnight trading that now takes place in the Asia-Pacific markets. It will also be interesting to see whether there is any domestic retail appetite for overnight trading.
In any event, credit should be given to the SEC for taking a chance on something new, thereby furthering innovation in the Exchange space.