24/7 Trading and the Politics of Time
The U.S. is moving toward 24/7 stock trading. In a world where politics and finance are increasingly intertwined, the effects will be transformative.
The NIST-F4, maintained by scientists at the University of Colorado, Boulder, is one of the world’s most important clocks. By trapping atoms within a vacuum chamber and using lasers to record their oscillation, the NIST-F4 can measure the passage of time at astonishing levels of accuracy.1 Most of us have to reset our watches every so often to address “drift.” But not the NIST-F4; it would take 100 million years for the clock to gain or lose one second.2 This remarkable measurement is used to define the official start of every second in the United States.3 That data is then combined with estimates from other countries to produce a weighted average, one broadcast to devices all over the world.4 The time displaying at the corner of your screen as you read this post was, in other words, partly made in Colorado.
These measurements of time are essential to today’s capital markets. Algorithms trade stocks, ETFs, and other instruments at sub-millisecond speeds, requiring highly precise measurements of which orders occurred first.5 This would be easy if there were one central exchange where all this trading happens. But there isn’t just one exchange. There are hundreds.6 And trading algorithms regularly participate in multiple venues simultaneously, buying at one location while selling in another.7
But what if two markets’ clocks are inconsistent? What, in other words, would happen if NYSE thinks it’s 02:13:01PM but Nasdaq thinks its 02:13:02PM? The answer, quite simply, is chaos! It would suddenly become less clear, for any one trade, whose order should be processed first. Some lucky traders might benefit from the confusion, but others will find their order fulfilled at a worse price. Lawsuits will ensue. Systems could crash. And it may provide an opening for nefarious traders to front-run competitors in a practice known as ‘latency arbitrage.’
The solution to this problem is clock synchronization. U.S. exchanges are required to synchronize their clocks to within 100 microseconds of the time maintained by NIST-F4 in Colorado.8 For brokers, the standard is 50 milliseconds.9 Scientists from the National Institute of Standards and Technology have placed special clocks in exchange datacenters to achieve consistency.10 But there is still room for variation.11 Interactive Brokers, for example, discloses that it maintains its clocks to within 10 microseconds of NIST-F4.12 If another broker only synchs to within 50 milliseconds, that’s an enormous difference! Trading algorithms are, in other words, a bit like Matthew McConaughey in Interstellar: they may experience time at a different rate depending on the venue in which its measured.13
But now markets are experiencing another change to their space-time continuum: the advent of 24/7 trading. Historically, stock trading has been limited to normal working hours. NYSE, for example, is currently open from 9:30AM to 4PM ET. But that standard was shattered by the SEC’s recent approval of 24X, the first U.S. securities exchange to facilitate around-the-clock stock trading.14 This move poses complex challenges for regulators. More significant, however, are the political implications. Capital markets are not merely neutral venues of economic exchange.15 They both reflect and shape political outcomes. And by changing their hours of operation, we are also changing the rules of this strategic game.
Opening Bell
One of Wall Street’s great traditions is the ringing of the opening bell at the New York Stock Exchange. Originally, NYSE use a gavel, transitioning to a Chinese gong in the 1870s, and finally a brass bell in 1903.16 The bell served a real purpose: signaling the precise moment official trading could begin. But its official function was phased out as markets transitioned from physical ‘pits’ to computers. Today it is merely a ceremonial, made-for-TV event. Ringing the opening bell is a bit like winning the Heisman trophy of American capitalism, an honor often bestowed to companies celebrating their initial public offering. But you’ll also occasionally see the bell rung by important cultural figures, like Miss Piggy or Ronald Reagan.
Nevertheless, the opening bell still represents an important fact about American stock markets: trading hours are limited. The origin of these hours — 9:30AM to 4PM — are not entirely clear; they may reflect traditional conceptions of work and the necessity of daylight from the 18th century.17 What is clear, however, is that traders have long sought to push the boundaries. In 1864, for example, a businessman opened a hotel in Manhattan with an “evening” exchange, temporarily making New York the only city in the world with 24-hour trading.18 Exchanges also tried to draw customers away from NYSE in the 1880s with earlier trading hours.19
But neither successfully disrupted the standard trading schedule. What has emerged instead are special windows of pre-market trading (as early as 2:30AM) and extended hours sessions (e.g., 4PM to 8PM). Both are risky. You can only use certain order types during these periods, and because there are fewer participants, you are less likely to fill your order at a competitive price.20 Further, certain regulatory protections don’t apply outside normal trading hours.21 It is, in other words, the late-night poker table — a place where amateurs are likely to get burned.
The rapid rise of retail participation in stock markets — facilitated by electronic, zero-fee brokerage platforms — has created pressure for change. Consumers are looking at other markets which trade 24/7, like cryptocurrencies, and saying: ‘hey, now that’s what a healthy market should look like.’ As Robinhood’s JB Mackenzie summarized at a recent industry roundtable:
I think the client demand for 24-hour, seven-day-a-week trading is already there. There’s no question. So it’s in the marketplace, you see it in digital assets, you see it internationally. The fact of the matter is when the world is moving, you know, news doesn’t stop because of the fact — or world events — because of the fact that we’re closing our marketplaces.22
The Chief Investment Officer of Jump Trading, one of the world’s most sophisticated high-frequency trading firms, corroborated: “We know the endgame here. Markets will be trading 24/7 in the not-too-distant future.”23 And, indeed, it appears that moment has already arrived in equities markets.
24X: Time is Flat Circle
The newly approved securities exchange, 24X, will take a phased approach to around-the-clock stock trading. In 2025, it will start offering trading from 4AM to 7PM on weekdays.24 And if all goes well, it will then be allowed to offer trading from 8PM on Sundays through 7PM on Fridays, with a one-hour pause each day. It is, in essence, a 23/5 exchange — less than what was originally requested. The exchange first filed to offer trading seven days a week, and the CEO has expressed a desire to achieve this goal in the future.25 In the meantime, NYSE has announced plans to follow its lead by extending to 22 hours of trading on weekdays.26
The SEC’s approval of 24X was not without controversy. SIFMA, an association which represents brokers, raised serious concerns about clearing and settlement.27 This refers to the technical process by which money actually changes hands after a trade has been executed between two parties. The basic problem is that clearing doesn’t normally occur between 9PM and 1:30AM ET. So if anything goes wrong during those hours, brokers could be exposed to massive risks.28
Concerns have also been expressed about the human consequences. Is it healthy to encourage retail investors — students, grandmothers, your twice-divorced Uncle Frank — to trade Tesla stock at 3AM? Better Markets, a non-profit focusing on fairness in finance, thinks not:
…investing in individual stocks during off-hours trading is already “a risky gamble.” And human nature dictates that risky gambles are more popular at night. So imagine what the consequences would be if stock market “gambling,” combined with the gamification techniques that induce trading, was available 24 hours a day…we don’t have to imagine the consequences. In 2018, the Supreme Court legalized sports gambling. Sports gambling addiction is now approaching a “national epidemic to rival the opioid crisis”29
It appears at least two of the SEC’s five commissioners were satisfied these issues could be addressed through investor disclosures.30 In America, you see, one should be free to self-immolate. The important thing is they are informed. And, indeed, why should the nanny state prevent you from selling Vietnamese bonds at 4AM when an earthquake hits? The professionals can do it. Why can’t Uncle Frank? He knows what he’s doing. He watches CNBC, like, every morning.
Largely overlooked in these discussions, however, are the political implications of 24/7 trading. Markets are like living organisms, pulsating in response to world events and, in turn, shaping political behavior. And they are also strategic arenas, places where investors can mobilize their capital toward political aims. But these interrelationships have always been conditioned by time. Like a shot clock in a basketball game, market hours shape strategic decision-making. But what if there is no clock? What happens, in other words, if the game never ends?
New Rules, New Game
In February 1994, the market for government bonds collapsed in what has come to be remembered as the ‘great bond massacre.’31 Then-President Bill Clinton was heavily criticized, leading his advisor, James Carville, to famously remark that he would like to be reincarnated as the bond market: “You can intimidate everybody.”32 This quote, alongside his other big hit — “It’s the economy, stupid” — has become a shorthand for the power markets exert on politics. Policymakers must constantly consider how the market will respond to their every move. And the most successful political actors are often those who can skillfully play this strategic game.
Like any game, there are rules. And perhaps no rule is more important than time — the periods in which markets can react. There is a reason companies release bad news late on a Friday or outside trading hours.33 It’s the same reason policymakers try to resolve problems before 9:30AM.34 At the height of the 2008 financial crisis, for example, President Obama’s top economic advisors were constantly rushing to find solutions before the opening bell:
Fed officials didn’t feel that they had time to discuss the weekend’s events in detail with [Harvey Miller, Lehman Brothers’ head bankruptcy lawyer]. Their goals were to make sure that Lehman officials and their lawyers understood that there would be no reprieve and that the company had to file for bankruptcy before the markets opened on Monday morning. “The alternative would have been chaos,” [Tom Baxter, General Counsel for the New York Federal Reserve] said. “Everyone would have known that the weekend’s rescue efforts had failed. You’d have had a mad dash for assets worldwide.”35
But 24/7 trading changes everything. There will no longer be natural breaks in which politicians can sort out problems before the opening bell. The reason is simple: there won’t be an opening bell. Markets will react, in real-time, to every piece of news on a never-ending basis. This will not be fun for Congressional aids. And it may impose new time pressures on policymakers to take hasty action. How would the response to the 2008 financial crisis have differed if markets never closed?
But the impact of 24/7 trading won't be limited to fiscal policy. Recent events have demonstrated that markets can serve as venues for political mobilization. In 2021, for example, retail investors, coordinating in mass through Reddit (and potentially helped by hedge funds riding the wave), successfully pushed up the price of Gamestop by over 2000%.36 Their goal was largely political: to punish short-sellers and protest against the inequities of the financial system. And their success triggered a political firestorm, leading to investigations, court battles, and Congressional hearings on the regulation of U.S. stock markets.37
The short-squeeze was, however, carried out within the standard time constraints of U.S. stock markets — the temporal rules of the game. Sure, there were professionals trading Gamestop in pre-market sessions or afterhours. But the bulk of the action, particularly for retail investors, took place from 9:30AM - 4PM ET. What will happen when we eliminate these constraints? How, in other words, will 24/7 trading impact the market’s strategic dynamics?
One possibility is that it provides more strategic flexibility to retail investors, allowing them to pressure short-sellers throughout the night. But it is equally plausible that extended hours will dilute their collective impact. And, indeed, non-stop trading may ultimately benefit professional traders. Like crocodiles in a swamp, they’ll happily wait for amateurs to cross the water late at night.
What we can say for certain is that 24/7 trading will fundamentally alter markets and, in turn, political decision-making. We can’t change the time displaying at the corner of your screen — we can only measure it. But the hours we establish for trading are very much man-made. For hundreds of years, we’ve decided those hours should be strictly limited. And now those limitations are being withdrawn. The implications, both for our markets and our politics, will be seismic. Because the best strategy for a game is very different when it has no end.38
NIST Cesium Fountains Set Standard for Precision Timekeeping. But it is not the world’s fastest. That honor — orders of magnitude more accurate — goes to Alexander Aeppli, Kyungtae Kim, William Warfield, Marianna S. Safronova, Jun Ye, A clock with 8×10−19 systematic uncertainty.
Ibid.
Check out all these exchanges (seems like too many?). This doesn’t include the alternative trading systems and broker-dealer internalization processes which brings the total number of venues past 100. I talk about this more in Market Structure and Disempowering Regulatory Intermediaries: Insights from U.S. Trade Surveillance.
In the U.S. this is facilitated through Regulation NMS. One of the central components of Reg NMS, as its called in cool regulatory circles, is to force brokers to route customer orders to whichever venue offers the best price. Some people think this is bad.
In the EU it’s 100 microseconds, a 500x difference in precision.
Pretty fascinating stuff.
Interactive Brokers Clock Synchronization Attestation.
See, e.g., Johannes Petry’s Financialization with Chinese characteristics? Exchanges, control and capital markets in authoritarian capitalism.
NYSE, History of the Bell.
Robert Sobel, The Big Board: A History of the New York Stock Market.
Ibid, 78.
Per Linkedin comment in response to a question of whether they would change their name to 23x, “Not yet, I would rather see it 24hours and 7 days in the future.”
Ibid (4-5): “It is SIFMA’s preliminary understanding, gleaned from discussions with various market participants (and not based on the very general information in the 24X Application),15 that because the NSCC and DTCC systems are not operational between 9:00 p.m. ET and 1:30 a.m. ET, 24X would submit to NSCC for central clearing all trades executed during those times via the Universal Trade Capture (“UTC”) system at 1:30 a.m. ET the following trade date, and those trades would settle on the subsequent settlement day. Therefore, for trades executed on 24X between 9:00 p.m. ET and 1:30 a.m. ET, there would be no CCP guaranteeing any aspect of the trades for more than five hours, and all default risks (and related clearance, settlement, payment, and delivery risks) associated with such executions would be borne by the broker-dealers whose customers are on either side of the trades, until the trades were transferred to DTCC for novation at or around 1:30 a.m. ET.”
Better Markets (4), Re: File No. 10-242, 24X National Exchange LLC.
In a statement on the approval, Commissioners Hester M. Peirce and Caroline A. Crenshaw wrote, “The Exchange’s rules provide for additional disclosures to investors regarding the risks of trading in the overnight session, and the approval order allows overnight trading to commence only after the Equity Data Plans are in concurrent operation. With this order, the Commission provides for innovation in our lit markets with disclosure-based investor protection measures that are consistent with the Commission’s historical practice.”
Ibid.
See, e.g., Timothy Geithner’s Stress Test. See also THE TIMING OF CENTRAL BANK COMMUNICATION.
James B. Stewart, Eight Days.
Here Matthew McConaughey has traveled through time, from the introduction to the conclusion, for his rendition of Nietzche’s eternal recurrence.
Part of this is to let everyone in the Eastern Hemisphere invest in our markets more easily. I get that. Though I can't put my hands on it right now, I remember looking at some research that said the longer trading hours are, the more volatile prices get.
I'm a one-man RIA with about 30 clients. There is no way I will do any significant trading outside current normal hours. My concern is that liquidity might diminish during current normal hours. Then again, I tend to be a patient trader, adding liquidity, not demanding liquidity, so maybe I could get some better executions in the new hours.
This will turn price volatility due to news releases into an instant thing, rather than a gap from the close to the open.
I don't like it. It's good for markets off all sorts to have time when they are closed so that people can sleep, and the back office can catch up. At T+1 how will they deal with settlement failures? Margin calls? I guess we will have to learn the hard way.