Securities market participants must adapt their operations to accommodate a transition to 24/7 trading. This warning, issued by the World Federation of Exchanges (WFE), emerges amidst discussions on the benefits of extended trading hours.
With advancements in tokenization, the idea of a continuously open securities market is becoming more plausible. However, the WFE cautions that such a transition is “not inevitable nor universally desirable.”
Key considerations include the effects on liquidity, market structure, risk, security, and operational models. The paper titled “Policy and Market Impacts of Extended Trading” notes that while extended trading hours may be “technologically feasible and aligned with investor demand,” their implementation must be carefully managed to maintain market integrity, protect investors, and ensure systemic stability.
From a technological standpoint, exchanges, clearing houses, and brokers need to prepare their systems for high availability, real-time risk management, and continuous monitoring. There will also be post-trade issues to resolve, such as establishing systems capable of managing 24/7 data feeds, enhancing supervisory frameworks, and addressing risks during low liquidity periods.
The paper suggests considering the preferences of security issuers and proposes a gradual transition to a 22/5 or 23/5 trading environment rather than an immediate shift to 24/7 trading. This approach offers a “pragmatic path forward” that allows exchanges to meet increasing demand while assessing operational readiness.
Nandini Sukumar, CEO of the WFE, indicates that the paper is more of a framework for potential future developments rather than a directive for 24/7 markets. She stresses the importance of evolving in a manner that safeguards investors, upholds market integrity, and enhances global competitiveness. Any transition must be collaborative across custodians, settlement banks, brokers, and regulators.