As the prospect of 24/5 trading continues to be increasingly discussed across the industry, more and more firms are anticipating a rise in overnight trading over the next few years.
Val Wotton
Specifically, approximately 1-10% of all equity volume is predicted to be traded during overnight sessions by 2028, according to firms surveyed in a recent report from the Depository Trust & Clearing Corporation (DTCC) and EY.
The study pointed towards retail participation as an initial driver of these increases, with greater institutional interest expected to grow during periods of market stress and as infrastructure around 24/5 trading begins to develop.
More than half of those surveyed predicted that institutional parties would begin to participate in overnight activity during times of market turbulence.
The study also highlighted global demand, most notably from APAC investors, and regulation allowing for overnight trading as further reasons behind a potential increase in 24/5 trading.
“As interest in near round-the-clock trading of US equities grows, we are meeting this demand by extending our clearing hours to support our clients and further strengthen the safety and soundness of the markets,” said Val Wotton, DTCC’s managing director and global head of equities solutions.
Read more – National Securities Clearing Corporation to extend clearing to support extended trading hours
Additionally, possible challenges and areas that firms should be aware of ahead of a potential growth in extended trading hours were emphasised in the report.
The need for the necessary infrastructure and technology required to support a transition to this model were both highlighted, in reference to the risk, margin and liquidity management complexities that 24/5 trading poses to firms.
To mitigate these obstacles, the report proposed that firms should ensure that market safeguards are aligned, including circuit breakers and surveillance, as well as updating SIP data feeds to an extended trading model to achieve real-time accuracy and market stability.
Read more – An un-unified approach to expanding equities trading hours
“Extending trading hours represents a significant step for US equity markets, aligning market structure with the expectations of an increasingly global, always-on investor base,” said Mark Nichols, principal and capital markets strategy and market structure leader at EY US.
“Through this collaboration with DTCC, we aim to equip market participants with clear, actionable insights on navigating the complex firmwide implications and operating model considerations of a 24×5 trading environment – helping the industry collectively build a more accessible and resilient marketplace.”
The report – ‘the shift to 24×5 trading: what it means for US equity markets’ – surveyed 95 participants from 84 firms, which included 72 members of the National Securities Clearing Corporation.