The pros and cons for investors of nonstop trading as NYSE looks to go 22 hours a day

The New York Stock Exchange, owned by Intercontinental Exchange, wants to do trading 22 hours a day during the week. Is that good for the markets? 

The Big Board announced on Friday that it was seeking approval to expand trading on its electronic Arca platform from 16 hours a day to 22 hours a day (pausing between 11:30 p.m. and 1:30 a.m. ET) from Monday to Friday, subject to regulatory approval. 

NYSA Arca currently has a pre-opening session from 4:00-9:30 AM ET.  “Core” trading hours for both the NYSE floor and NYSE Arca are 9:30 a.m. to 4:00 p.m. ET.  NYSE Arca then has a late trading session from 4:00 p.m. to 8:00 p.m. ET.

Nasdaq, which has current trading hours similar to the NYSE, declined to comment on the NYSE announcement and declined to say whether it would match the NYSE’s proposal to expand trading hours.

The NYSE thinks so 

“Interest in U.S. equities from both retail and institutional investors continues to grow, both in the U.S. and globally,” Kevin Tyrrell, head of markets at NYSE, told CNBC in an interview on Friday.

Tyrrell, declined to provide more specific details on where the demand was coming from and declined to provide details on a survey NYSE did of its members on expanding trading hours.

“Our 22-5 [22 hours a day, 5 days a week] extended trading plan is based on numerous interactions with market participants as well as our own data and analysis,” Tyrrell, said.  “We believe our 22-5 extended plan is the right approach given current levels of investor demand and availability of current market infrastructure.”

Jim Toes, CEO of the Security Traders Association, an industry group, told CNBC the application “seems very premature as the demand by investors for overnight and weekend exchange trading is speculative.”

However, Dmitri Galinov, who formerly ran Credit Suisse’s dark pool, disagrees.

“There is definitely demand from overseas, particularly South Korea, Japan, and some demand in Europe,” he told CNBC in an interview on Sunday.  

“In addition, there are retail traders in the U.S. who want to trade at night. Many retail traders work during the day, they come home and want to trade beyond the 8 p.m. cutoff for trading.”

What about institutional traders?  Do they relish trading on thin volumes? 

“The institutions will not be the first movers, but as the volume migrates to a 24-hour curve, the institutions will come,” he told CNBC.

What about listed companies?  How might they feel about potentially higher volatility in their stocks in after-hours?

Galinov says most international companies would welcome expanded trading.

“U.S. markets are the most liquid markets in the world, so if I am an international company I would be much more likely to list on the NYSE if it had trading around the clock,” he told me.  “Trading around the clock is much more convenient if I am an international company.”

Galinov now runs the 24X National Exchange, which has an application before the SEC to trade overnight as a fully licensed exchange.  24X recently amended its application to trade from 23 hours a day seven days a week, to 23 hours a day five days a week.

Galinov said the SEC is due to rule on their application for an exchange by November 29th.

Increased global competition, the desire to capture more trading volume, and the need to accommodate a growing pool of international traders are obvious incentives for stock exchanges to seek expanded trading hours.

Several firms allow some trading in the overnight hours.  Robinhood, for example, has a relationship with Blue Ocean Technologies, which runs an alternative trading system (ATS), that allows clients to trade stocks in the after-hours.  Blue Ocean was recently reportedly forced to halt trading on August 5th during a wave of global market volatility that saw volumes spike dramatically.  It resumed trading the next day.

Many in the investing community have long expressed reservations about expanding trading. 

Dennis Kelleher, CEO of Better Markets, a nonprofit active in financial reform, has filed briefs in opposition to expanding trading hours, citing thin volumes which can lead to much wider bid-ask spreads,  the encouragement of impulsive trading at late hours, and the disadvantage retail traders may face against better-informed professional traders.

“All of that will be compounded by the increased use of AI, predictive analytics, and gamification on apps that will be hyper-targeted on those most susceptible to trading at times and in ways that are not in their best interests,” Kelleher told CNBC.

Better Markets recently filed a brief in opposition to the application of the 24X National Exchange.

“Retail investors who traded during an overnight session would be trading in a market where prices are bound to be more volatile and less favorable than during normal trading hours,” Benjamin L. Schiffrin, director of securities policy at Better Markets, said in a letter accompanying the brief.   “All around-the-clock trading on an exchange would do would be to provide another avenue for sophisticated market participants such as high-frequency traders to take advantage of retail investors.”

Jay Woods, a former designated market maker on the floor of the NYSE and currently with Freedom Capital Markets, also expressed concerns that retail traders would be trading in thin markets. 

“Prop traders [proprietary traders] are salivating over this because you are going to have the chance to trade against retail traders in very thin volume,” Woods told CNBC.

Still, Woods admitted that, “This is the direction trading is going. There is some demand, but is it healthy for the market?  Is it healthy for listed companies?  Is it good for retail investors to be trading when liquidity is thin?  There are reasons we take breaks from trading.”

The NYSE noted that the proposed change was “subject to regulatory approval.” 

Tyrrell, said that, “the NYSE plans to file updated rules with the Securities and Exchange Commission,” but declined to provide a specific timeline.  Applications for regulatory approval from the SEC typically carry a required response time of up to 240 days from the date of the filing.

Tyrrell, also noted that there will need to be changes in the securities information processors that gather the trade and quote data from U.S. stock exchanges and consolidate them into a single data feed.  “The NYSE will seek support for extended trading from the U.S. securities information processors [SIPs],” Tyrell told CNBC.