The move follows plans by other exchanges: Cboe Global Markets Inc. said last month it would extend trading on its equities exchange to 24 hours, five days a week, pending regulatory approval. The New York Stock Exchange filed its own application in October with plans to offer trading 22 hours on weekdays. That got initial approval from the Securities and Exchange Commission last month, pending updates to the market’s data feed.
Nasdaq’s Cohen pointed to heightened interest in US markets from retail investors in different time zones. Still, he said markets and investors need to consider the risks associated with increased volatility and higher transaction costs that can come as a result of the expanded trading hours. Despite the increase in overnight trading, liquidity is still “significantly lower” during those hours, according to Cohen.Data Update
The plans also hinge on an update to the securities information processor, also known as the SIP, which displays the best bid and offer price of a stock on an exchange at the time of transaction. For overnight trading to take effect on public stock venues, this data needs to be updated to accommodate the extra hours.Nasdaq will work with other industry participants to mitigate these concerns and risks, Cohen said. It’s forming a group to do so, according to a spokesperson. The firm also intends to file its own application with the SEC to start the regulatory approval process for overnight trading on Nasdaq, the spokesperson said.
“The question is not whether we can build a market that operates 24/5, but how we do so in a way that strengthens investor confidence in US capital markets today,” said Cohen.
Extended trading hours became more common during the pandemic, allowing investors to react to market-moving events immediately. Firms such as Robinhood Markets Inc. and Interactive Brokers Group Inc. started enabling customers to buy and sell US stocks 24 hours a day, five days a week on off-exchange venues like Blue Ocean’s alternative-trading system.
Venues that allow nonstop stock trading have split Wall Street. Proponents say investors both in the US and overseas want the ability to react and access stocks outside of US market hours. Opponents have warned that the quality of trading may suffer from lower volume, which can make pricing less precise.
The majority of trading activity still occurs around the infamous opening and closing bell across the largest stock exchanges in US markets. With the additional hours, a lingering question becomes whether institutional traders will start to trade outside of those moments when volumes are higher.
