Regulatory Roundup: Beyond the 9-to-5: Navigating Extended Hours Trading
Analysis
Beyond the 9-to-5: Navigating Extended Hours Trading
Even in our 24/7 globally interconnected world, markets still predominantly operate during the same hours as your local post office. However, recent developments in the U.S. have brought extended hours trading and 24-hour trading into sharper focus.
In this month’s analysis, we’ll explore the steps market participants can take to strengthen systems and controls ahead of moves to extend trading hours and cover a case of market manipulation that occurred outside of normal market hours.
Key Takeaways
- Extended trading hours make markets more attractive to global investors by opening potential new liquidity pools.
- Extra hours may drive increased volatility during low liquidity periods, with implications for market and trading surveillance.
- A notable case of market manipulation during extended hours highlights the challenges firms must mitigate during low liquidity periods.
- Compliance teams must enhance their systems and procedures to effectively manage the different market dynamics outside of the traditional 9-5 window.
The Dynamics and Risks of Extended and 24-Hour Trading
We’ve already seen extended trading and 24-hour trading in various forms, such as in many FX, commodity and crypto markets that trade nearly 24 hours a day. Extended hours make markets more attractive to global investors, opening potential new liquidity pools. Recently, there has been increasing demand for after-hours trading from retail customers, as technology has already made trading incredibly convenient.
For risk and compliance teams, extra hours bring additional challenges that must be mitigated. For example, trading sessions that span two calendar days (e.g., 7 AM to 3 AM the following day) require separating the concept of a trading day from a calendar day, adding complexity to existing systems and controls. From a risk perspective, the main concern is how to respond to periods of lower liquidity.