NYSE’s move to 22-hour trading is for foreign investors, not domestic degens

Some news you might have missed late last week: the New York Stock Exchange announced its intention to extend trading on its Arca platform to 22 hours per weekday.

Is this the latest in a series of tactics to appeal to a gambling-obsessed culture with an unscratchable itch to put more and more money on the line, no matter the time of day?

Well, not quite, says Larry Tabb, head of market-structure research at Bloomberg Intelligence. 

“This is catering to foreign investors trading US markets during Asian daylight hours,” he said. “There is at least some market for folks who, for whatever reason, want to trade at 3 a.m. in the US, but Korea, Taiwan, Japan — the different markets that are closed when we’re open — they’re the real target.”

Blue Ocean, through its trading system (dubbed BOATS), has enabled broker-dealers to access stocks and ETFs in “an exchange-like manner” well outside of normal trading hours since 2021. The likes of Interactive Brokers and Robinhood (Sherwood Media is an independent subsidiary of Robinhood Markets, Inc.) use BOATS as an execution venue for 24-hour trading. 

“Increasingly, we’re realizing that there is a global market for risk, for trading, and the success of Blue Ocean has others looking to create competition in that space,” Tabb added.

This development is positive on net, he said, by enhancing the US’s already dominant financial footprint and bringing more activity on exchange under US governance and rules. It likely won’t change much for institutional investors in the US, but some volume patterns might change. For instance, the volume burst at the US open from traders in Asia might go down, with some of that activity pulled into the night before.

Expanding trading hours is a clear boon for market makers — the intermediaries who facilitate trades and bridge buyers and sellers, earning a little on each trade. There will inevitably be much, much less volume during extended trading hours compared to the core session. As such, spreads (that is, the cost to trade) will almost certainly be higher during this period, so on a per-trade basis, margins should improve. And most of the biggest liquidity providers are already global, so this won’t require much in the way of an operational overhaul to take advantage of. But it will create some challenges for this cohort, because some of the typical tools market makers use to manage risk — especially options — won’t be readily available around the clock.

Separately, there’s the issue of market fragility to consider. An enhanced ability to trade thinner markets more frequently is a recipe for more episodes of volatility in single names — perhaps for good reason, but perhaps for none at all. When you jump off the side of a boat into the ocean, the ocean doesn’t care. If you try to cannonball into an inflatable kiddie pool, well, that’s going to be pretty disruptive. 

In other words, trying to put a lot of money to work at 10 a.m. New York time is going to have much less of a price impact than trying the same thing at 1:42 a.m. 

“The market might be there but it’s not going to be deep,” Tabb cautioned. “Will someone foolish come in and try to trade too much in too short a time? Absolutely. I’m sure we’re going to fumble our way through this, but figure it out.”