The heads of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) say it's a "new day" for the two organizations. The regulators want to work together to ensure harmonized oversight and promote innovation in the field of digital assets. This collaboration is part of a wider push to develop U.S. cryptocurrency markets and digital assets.
On Sept. 5, SEC Chair Paul Atkins and CFTC Acting Chairman Caroline Pham announced a series of new joint priorities. These include relaxing derivatives rules, exploring exemptions so that decentralized finance (DeFi) projects can grow, and expanding equity trading hours -- potentially as far as 24/7 trading.
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Moves toward 24/7 equity trading
Cryptocurrency and forex investors are no strangers to round-the-clock trading. Even for equities, trading outside the regular hours of 9:30 a.m. to 4 p.m. ET is not new.
Several brokerages, including Robinhood (HOOD +1.23%), Interactive Brokers (IBKR +2.24%), and Charles Schwab (SCHW 1.42%), already offer some form of after-hours trading. Last November, the SEC greenlighted plans from the 24X National Exchange to offer 23-hour trading days.
NASDAQ: HOOD
Key Data Points
Nasdaq and NYSE are both working toward longer trading hours. Last year, Intercontinental Exchange (ICE +0.67%), the company behind the NYSE, said that it wanted to extend U.S. trading to 22 hours a day, five days a week. Nasdaq plans to introduce 24-hour trading five days a week before the end of this year.
To some extent, proposals to extend trading hours run in parallel with moves to tokenize stocks and allow registered brokerages to offer spot crypto trading. Tokenized stocks are essentially blockchain-based tokens that represent shares in a company -- and like cryptocurrency, they can be traded at any time. The lines between what crypto exchanges and brokerages offer are becoming increasingly blurred.
What 24/7 trading might mean for investors
For retail investors, one big benefit of longer trading hours is that markets become more agile and accessible. It opens the way to react to news in the here and now, rather than waiting for the market bell. That may or may not be a good thing, given that panic investment decisions rarely pay off.
All the same, the current system does not favor people who want to manage their investments outside the regular working day. International investors may also appreciate extended hours. The World Economic Forum says that about 18% of U.S. equities are owned by people abroad, and a shift in trading times could boost this figure.
But it brings disadvantages, too. For investors, out-of-hours trading can mean:
- Less liquidity: According to the NYSE, about 11% of equity trading takes place out of hours. These trades have less liquidity to work with, which can make it harder to execute trades. If they can get the trades done, after-hours investors may also not get the best prices.
- Wider spreads: The other consequence of lower liquidity is that the bid-ask spread will grow, meaning trades can be more expensive. Plus, the National Best Bid and Offer (NBBO), which ensures that investors get the best price and tightest spread, does not operate round-the-clock.
- Increased volatility: Prices can swing more if there are fewer traders in the market. Markets can also become more reactive as people trade on the back of positive or negative news without necessarily taking the time to process the information.
Right now, brokerages use alternative trading systems (ATS) to offer non-traditional trading hours. Some of this takes place via "dark pools" -- so named because trades don't become public until after they've executed. They may sound sinister, but they're registered with the SEC. They were designed to allow institutional investors to make large trades without moving the markets.
If the regulators' plans pan out, out-of-hours trading would take place on regulator-approved exchanges rather than in dark pools. This could take some of the risks out of extended trading. As two SEC commissioners pointed out in a statement last year, using lit exchanges -- the opposite of dark pools -- could mean increased investor protection and increased liquidity.
Nonetheless, there's still a lot of work to do behind the scenes to make extended trading a reality. In addition to practical questions of how to staff always-on exchanges, there are also technical and operational issues. Right now, financial institutions use the downtime to process certain trades, upgrade infrastructure, and more. Transitioning to something new won't be as simple as ringing a bell.
How investors can prepare for changing financial sands
Change is afoot in financial exchanges and regulation. It's a good time for investors to consider their investment strategies and identify assets that may benefit from regulatory developments.
In terms of the how, that means staying informed, maintaining a diversified portfolio, and considering strategies to handle round-the-clock markets. Investigate the credentials of any brokerage you use, and make sure you understand the risks. If you're a long-term investor, solid research and a firm hold on your investment strategy can help avoid middle-of-the-night trades.
As for potential investment opportunities, here are some areas to have on your radar:
- Brokerages that are ready for extended trading: I mentioned Robinhood, Interactive Brokers, and Charles Schwab above. Robinhood, which also sells crypto and has rolled out tokenized assets in Europe, could be well-positioned to capitalize on regulatory changes.
- Cryptocurrency ecosystems that will support tokenized assets: Tokenized assets are the other side of the extended trading hours coin. Keep an eye on smart-contract cryptos like Ethereum (ETH +1.69%) and Solana (SOL +1.85%), as these may be where tokenized securities will be built.
2025 has already seen significant changes in financial regulation, and there are more to come. Informed investors will be best-positioned to benefit as we move into a new era of finance.
