How did the plan come together for an around-the-clock equities trading platform?
We started our business with foreign exchange when I created the company in 2019. We specialise on FX in the currencies of emerging market countries, such as Korea, India, Brazil etc. and with that I was traveling the world and spending a lot of time in Asia and the Middle East. What struck me was that across those different time zones, in all those countries, you have Apple stores and McDonald’s and Tesla dealerships and these American companies have a definite interest from the local people. They want to invest in American companies and participate, but exchanges like the New York Stock Exchange or NASDAQ at the time did not offer the service that meant they could do it in real time and at their convenience.
At the time, the New York Stock Exchange or NASDAQ didn’t really have any plan to address after hours trading, so that was the gap. Even though crypto and foreign exchange trade 24 hours, the exchanges didn’t seem to offer a service in the same vein, so that’s when we said okay there is definitely a need for foreign investors to access US markets in real time, let’s make it happen. We began by doing research into the percentage ownership of foreign investors in US stocks and how that was increasing every year and it was an undeniably growing demand.
Following that, four years ago, we approached the SEC to request a license for a stock exchange that trades overnight. That process began in 2021, and after many dozens of meetings with the regulator, we received approval for an overnight equities trading platform.
Tell us more about the market sentiment following your approval?
It’s been very positive, and the level of support from large financial institutions has been surprising. To give an example, when we started this process we thought that the early participants would be retail clients from APAC, and perhaps some US clients who don’t want to sleep at night on one side and your typical market makers on the other side that would provide liquidity. However, we didn’t really think that big banks, big institutions would want to do it from day one.
Basically, it’s very expensive for banks to add compliance and trading systems to support significantly increased trading hours. Add to that, the fact that stock trading is of course very regulated. Talking to the banks over the last few years this was repeated continuously, however a few months ago these entities really changed their views. Now many of them are embracing it, there’s been a sea of change in the banks supporting 24 Exchange.
When we asked why they told us that they had received a lot of calls from their institutional clients from APAC that wanted to participate in the US market and so clearly that’s why they need to support expanded trading hours. Clearly, aside from Asian retail clients, there’s also Asian institutions that want to trade at their convenience and are pushing global banks to support this overnight trading.
You’ve spoken before about bring the dynamism of crypto to equities, tell us more about that.
It all comes off the back of everything becoming more electronic – most institutions now trade through algorithms (especially US equities), so there is no need to be on the New York Stock Exchange floor anymore, things have changed.
And what you will see with 24 Exchange’s round-the-clock trading is some companies will have an algorithm which will trade a lot overnight. Because there is so much electronic trading now, it will be a much easier migration than people think.
Other exchanges have also announced plans to extend trading hours, thoughts?
We have our big competitors like Nasdaq and NYSE of course who have announced their plans to go overnight and then the question for us is how we compete. What I think is useful to highlight is that as a small exchange just starting out we are looking at how to compete with this behemoth that’s been around for literally hundreds of years. So we compete by having our own unique selling proposition (USP).
There’s a couple of things to highlight. One, the way we compete is through using newer technology. So, for example, the New York Stock Exchange and Nasdaq have had to build, build, build and maintain their own technology. It’s very expensive and it’s also older. What we’re doing now is renting another exchange’s technology – which is much newer – and also cheaper. The benefits are therefore two-fold: we become much more cost effective and as a result we can be much more aggressive on pricing, and also we can change and upgrade more quickly. And we are uniquely able to bring our proven expertise in 24/7 electronic FX trading – something the legacy exchanges do not have.”
With the market hours debate ramping up, what’s your perspective on differing opinions either side of the pond?
It’s very interesting and I definitely know that in London they want to shorten the hours but I see it more like risk management. Speaking to US-based buy-siders, what they would like is just to have the option of trading 24 hours. Maybe they will never do it, but they would like to have the possibility in case something happens. Let’s say they have even just an operational need to do something after hours, at least they will have an infrastructure to do it – at least they will have a price.
Obviously, the market might be not very liquid for a buy-side client to be able to do a big transaction in the middle of the night, but they can find a bank that would be willing to do a trade and they have a reference price, so they at least know where the stock is trading at 3am. For a trader, keeping your options open is always important.