NYSE’s Leap to 22-Hour Trading: A New Era of Market Accessibility or Increased Volatility?

The New York Stock Exchange (NYSE) recently announced plans to extend trading hours for equities on its all-electronic Arca exchange to 22 hours on weekdays, aiming to meet the growing global demand for continuous access to US-listed assets. Operated by the Intercontinental Exchange, NYSE Arca’s expanded hours would cover 1:30 AM to 11:30 PM Eastern Time, excluding holidays, and are expected to launch in 2025 pending approval by the Securities and Exchange Commission (SEC). This move aligns with the increasing popularity of around-the-clock retail trading through brokerage platforms like Robinhood and Interactive Brokers, a trend that accelerated during the pandemic and amid the rising interest in cryptocurrency and other continuously traded assets.

In the announcement last Friday, Kevin Tyrrell who's Head of Markets at the NYSE, emphasised the initiative as a way to expand access for global investors, reinforcing NYSE's role as a steward of US capital markets. This expansion would require SEC approval and regulatory adjustments to include night-time activity in official pricing records managed by entities like the Consolidated Tape Association. Given NYSE Arca’s reputation as a premier venue for exchange-traded funds (ETFs) and certain stocks, the extended hours reflect NYSE’s efforts to keep pace with international demand, the surge in retail trading, and 24/7 trading models established in other asset classes, including US Treasuries, stock index futures, and currencies.

Balancing Opportunities and Risks of Extended Trading

This expansion marks a transformative shift in market accessibility, aiming to create a nearly continuous trading environment that meets the needs of a global investor base. However, the proposed change also brings potential risks and challenges, with a distinct set of pros and cons that market participants are carefully weighing.

Pros

• Global Accessibility: Extending trading hours makes the market more accessible to investors worldwide, particularly those in different time zones, such as Asia and Europe. With the ability to trade during their business hours, these investors can participate more actively, potentially increasing liquidity and enhancing the NYSE’s inclusivity and appeal to a global audience.
• Market Efficiency: Continuous trading may lead to more efficient price discovery, as there are fewer gaps where prices could dramatically shift due to after-hours news. By closing these gaps, the NYSE could offer a more seamless flow of information, making the market more responsive and transparent.
• Reacting to News: Investors gain the ability to react immediately to global news, economic data releases, and geopolitical events, rather than waiting for the NYSE to open. This real-time responsiveness is likely to be viewed positively by those who see 24/7 access as crucial in a globally interconnected market, where any delay in reaction could mean missed opportunities or delayed decision-making.
• Increased Trading Opportunities: Extended hours are expected to stimulate more trading activity, benefiting market makers, traders, and the NYSE itself through higher transaction volumes and fees. For retail investors, the added hours align with their growing power and influence, offering them new avenues to engage with the market.
• Competitive Edge: Extended trading could help the NYSE stay competitive with other markets that already offer longer trading hours, such as certain foreign exchanges and cryptocurrency markets, which operate 24/7. Market participants see this as a step towards aligning with a broader industry trend where constant accessibility is becoming the norm.
• Support for Retail Trading: This extension reflects a significant acknowledgment of the influence of retail investors and the rise of accessible trading platforms. With more flexibility to trade outside traditional hours, retail investors gain more control, adding to the democratisation of market access. This shift also mirrors developments in other asset classes, like cryptocurrency, where retail trading has boomed under round-the-clock access.

Cons

• Increased Volatility and Speculative Culture: There is likely to be strong concerns that extending trading hours could amplify volatility, as markets would have less time to "reset" between sessions. Similar to Crypto-trading, some will liken this move to creating a "casino" atmosphere, where continuous trading may drive speculative and reactive behaviours, potentially undermining the strategic investment approach traditionally associated with the NYSE.
• Liquidity Issues During Off-Peak Hours: While overall liquidity might increase, participants are wary that certain hours—especially late at night—could see significantly lower trading volumes. This can lead to wider bid-ask spreads, reduced liquidity, and less favourable conditions, impacting the quality and stability of the market during off-peak hours.
• Market Fragmentation: Extending hours risks fragmenting liquidity across different sessions, which could dilute the concentration of trading during the traditional 9:30 AM to 4:00 PM session. This could reduce the established period’s influence, where high volumes typically facilitate tighter spreads and more efficient trading, impacting strategies and potentially destabilising the market.
• Operational and Regulatory Challenges: Managing a 22-hour market adds complexity, including the need for continuous regulatory oversight, robust market surveillance, and stable infrastructure. There will be concern about the regulatory burden this shift would create, requiring near-constant monitoring to ensure compliance and detect fraudulent activities, which could strain existing resources and increase costs.
• Overtrading and Emotional Decisions: Continuous access to the market could encourage impulsive trading, particularly among retail investors who may react to short-term market moves based on emotion or incomplete information. This environment could lead to overtrading and increased speculative behaviour, which might harm those without sophisticated trading strategies.
• Health and Well-being of Traders: Many professionals in the industry already raise concerns about the impact on the mental and physical health of traders and analysts who may feel compelled to monitor the market continuously, this problem would be compounded with even greater impacts on mental health. Thus the shift could create a high-stress environment, with extended hours increasing the demands on market professionals and potentially affecting their long-term well-being.
• Technological Reliability and Cybersecurity: Operating nearly around the clock places significant additional stress on trading infrastructure, raising important questions about both technological reliability and cybersecurity. A critical challenge lies in whether existing systems can handle this increased load without interruptions or vulnerabilities, such as technical failures or cyber attacks, which could quickly undermine market confidence. Furthermore, compressing the traditionally overnight processing time for batch updates and data reconciliations into just 90 minutes introduces new risks. Shared infrastructure across multiple markets may need to adapt by either tightly condensing these essential processes or decoupling the timing of start/end batches from the traditional market close. Each adjustment carries ramifications that could impact the stability, security, and efficiency of round-the-clock trading operations.
• Impact on Investment Discipline: It is likely to be significant worry among long-term investors that that round-the-clock access may erode the discipline of strategic investment, encouraging a culture of rapid, short-term trades. Market participants will argue that this shift could lead to impulsive decisions, potentially reducing the emphasis on long-term growth and stability and creating an environment less conducive to sound investment principles.

Impact on Market Culture and Retail Dynamics

Beyond the practical pros and cons, there are overarching themes reflect broader cultural shifts and perceptions about the NYSE’s role. There are concerns that go beyond immediate benefits or drawbacks, touching on how extended trading hours may influence market culture and NYSE’s relationship with retail investors.

• Speculative Culture Risk: Extended hours could push the NYSE towards a more speculative, "casino-like" environment. This shift risks undermining the NYSE’s traditional reputation as a venue for thoughtful, strategic investment rather than encouraging impulsive trades.
• Acknowledgment of Retail Investor Influence: While already discussed in terms of added access, the cultural implication here is deeper—this move represents a shift towards catering to retail investor demands. Market participants remain divided on whether this will strengthen the market overall or amplify volatility and speculative behaviours.

Market Participants are Divided

Market participants are divided in their reactions to the NYSE’s move towards 22-hour trading, with distinct opinions between supporters and critics.

Supporters

View the change as a progressive step towards a more inclusive, globally accessible market, potentially levelling the playing field for investors in various time zones. They argue that extended hours could increase market efficiency by enabling more real-time reactions to news and economic data, thereby reducing price gaps and improving overall liquidity. Supporters also see this shift as an acknowledgment of the growing influence of retail investors, who now have greater flexibility to trade outside traditional hours.

Critics

Raise concerns about the impact on market stability, the health of trading culture, and the risk of increased speculative behaviour. They worry that continuous trading might lead to higher volatility and fragment the market, diluting the liquidity traditionally concentrated within core hours. Critics also caution that round-the-clock trading could encourage impulsive, short-term decisions over disciplined, long-term investment strategies. Additionally, operational and regulatory challenges such as continuous surveillance and cybersecurity risks underscore the potential strain on infrastructure and resources.

tl;dr

This division highlights both excitement over the benefits of global reach and accessibility, as well as apprehension about regulatory complexities and the fundamental shift in trading culture. Ultimately, this move by NYSE reflects a broader trend towards 24/7 market accessibility, influenced by the operational model of the crypto market and evolving retail investor dynamics.

The Road Ahead for NYSE’s Extended Trading

NYSE’s shift towards 22-hour trading embodies a pivotal moment in the evolution of financial markets. It reflects a growing demand for round-the-clock access, inspired by the always-on model of crypto markets and the rising influence of retail investors who seek flexibility and global reach. However, this change brings with it complex challenges, from potential volatility and operational strain to a shift in trading culture that may favour short-term speculation over disciplined investment.

As the NYSE steps into this new era, it will be crucial to balance the needs of an increasingly diverse investor base with the foundational stability that has long defined the exchange. Whether this move enhances or disrupts the market will depend on how effectively these tensions are managed in a rapidly evolving financial landscape.