The market that never sleeps

Do you want to buy or sell Nvidia Corp. shares at 3 a.m. on a U.S. national exchange? That possibility could soon become reality.

The Securities and Exchange Commission will hold a roundtable next month on proposals by Nasdaq and 24X National Exchange to allow trading for 23 hours a day, five days a week. The SEC has already approved the exchanges' plans in principle, but they have not gone into effect yet because market infrastructure issues have not been resolved.

Sara Adler, counsel with Arnold & Porter LLP, said she expects the new systems to go online by Dec. 6. "They would have to put in their final proposal to be approved before that time, but we're not there yet," she said.

Other exchanges, including the New York Stock Exchange, also want to extend trading along similar hours. Several alternatives, including Blue Ocean Technologies, already offer overnight services that allow trades - although it is not an exchange.

SEC Chairman Paul S. Atkins, in a statement touting the roundtable, said the commission wants to explore the opportunities and challenges of expansion - but is otherwise enthusiastic.

"We are moving towards a new day - and night - in the U.S. equity markets," he said, adding that the challenge will be expanding trading hours while preserving investor protections.

Aaron K. Washington, counsel with Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates who previously worked at the SEC, said the proposal "reflects the reality that today's capital markets are increasingly global and that investor demand for access is no longer confined to traditional U.S. trading hours."

Exchanges in the U.S. already offer extended hours trading, both before the market opens and after it closes, and investors follow Asian and European markets, but attorneys and other legal observers have logistical concerns about how overnight trading will work.

The market never sleeps

"Going to trading around the clock means you need to be ready at all hours," said Benjamin Edwards, an associate dean at UNLV's William S. Boyd School of Law.

Large global institutions can spread that burden across multiple offices, but smaller companies and regulators may find it much harder to respond to overnight events.

What happens if a major South Korean company reports an earnings miss? Or a Chinese company announces an AI breakthrough? Or as has happened since February, shots and missiles are fired in the military conflict between the United States, Iran and other Middle Eastern countries?

Those overseas developments affect U.S. markets and investors, and those up at that time will be able to respond quickly.

Washington said a continuous market would introduce tradeoffs. "The test will be whether U.S. markets can preserve the same levels of transparency, investor protection, operational resilience, and market integrity in an environment where the market is effectively always open," he said.

The Skadden lawyer said there is less liquidity - fewer buyers and sellers -- in late-night trading. "Trades that have limited impact during the day could theoretically have a disproportionate impact on prices," he said. "From a regulatory perspective, existing federal securities laws already govern many aspects of trading, regardless of the time they occur.

"However, these laws may ultimately need to be adjusted to provide the same levels of protection in a 24-hour trading environment," Washington added.

Skeptics worry

Tyler Gellasch, president and CEO of Healthy Markets Association - an investor trade group -- frets that expanded trading will introduce dangers for small investors and be a hassle for institutional investors, who don't trade during off-hours due to low volume but will have to track it.

"Right now, most of the rules designed to ensure fair, orderly, and efficient markets, and protect investors, don't apply the same way to off-hours trading," he said. "That makes trading on nights and weekends a lot riskier for investors, but also profitable for intermediaries, like their brokers."

"Investors don't want to wake up and face a margin call at 7 a.m. because a stock price moved against them in thin trading at 2 a.m.," he added.

James D. Cox, a professor at Duke University School of Law, described the proposal as "just part of a constellation of proposals that raise questions whether any have been thought through."

He said the only winners of the continuous trading proposal would probably be attorneys representing groups of investors and traders. "Our markets will surely be tested," Cox added.

No fighting the tide?

Andrew C. Baker, an assistant professor at UC Berkeley School of Law and an expert on securities regulation, countered that markets may become more efficient if investors can react immediately to news rather than waiting for the opening bell, which is when the bulk of trading occurs.

Joel I. Greenberg, senior counsel with Arnold & Porter, said "there's so much pressure to trade outside of normal hours that people find a way," noting that trading has long been done by institutions in overseas markets or more recently on Blue Ocean.

"The problem with the current system is if I'm an individual investor, I don't know what's been trading on Blue Ocean," he said, adding that national exchanges provide transparency about activity in a stock.

"They're going to do it because we have been -- in for the past 10 or 20 years -- in an environment where traders get enough of an information flow where they want to react instantly to news," Greenberg added.

Adler acknowledged that longer trading hours will create new risks for exchanges, companies and investors, but said established exchanges and SEC oversight should mitigate many of them. Others remain skeptical, arguing that around-the-clock trading could encourage speculative behavior and strain regulators.

But Greenberg said news events happen that affect markets, and index futures and cryptocurrencies can be traded all night already. "You don't want to wait five hours to react to it," he said.

He said the SEC may need to expand the hours of EDGAR, its electronic filing system, so investors have access to material disclosures whenever markets are open.

"It's going to happen," Greenberg said. "There's a lot to be figured out."