MarketWatch: Wall Street is Headed Toward ‘Always On’ Overnight U.S. Trading Spurred by Asian Markets

By Vivien Lou Chen

Read the full article here.

There are some markets in the U.S. where investors can already trade at all hours.

Cryptocurrency markets, for example, operate 24 hours a day and 365 days a year. Some commodities and currencies trade nearly continuously, five days a week. And retail brokerages like Schwab, Robinhood and Interactive Brokers offer practically 24-hour, 5-days-a-week trading on a number of U.S. stocks and ETFs.

But getting major American exchanges in a position to operate virtually around the clock when it comes to U.S. stocks is likely to require a delicate balancing act — one that reflects the need to protect investors, but also rewards innovation by meeting heavy demand from traders.

Nowhere was the need for such a balancing act more evident than in Asia last year.

On Aug. 5, 2024, Blue Ocean ATS, an alternative trading system known as BOATS, experienced a temporary outage at around 1:45 a.m. Eastern time caused by high trading volumes during a global market selloff. The selloff had been triggered by a weak U.S. jobs report that fanned recession worries, as well as by the sudden unwinding of the Japanese yen carry trade.

The outage led to the cancellation of transactions in South Korea totaling 630 million won (about $435 million at the time) and affected about 90,000 customer accounts. About 70% of the overnight market crumbled following Blue Ocean’s system issue and the subsequent decision to halt trading on BOATS, according to Jason Wallach, chief executive of the Chicago-based broker-dealer which operates rival Bruce ATS. South Korea’s regulator and broker-dealers agreed to halt trading on BOATS during local daytime hours, which correspond with overnight hours in New York.

“Certainly, the primary lesson learned was about the demand,” Wallach said in an interview. “Some market participants may have looked at overnight trading as a novelty. The reality is that we, as an industry, are still in the early innings of a 24-hour trading day, but it is here to stay, both domestically and internationally.”

South Korean brokerages resumed daytime trading of U.S. stocks this month. But they are required to only access the U.S. overnight trading session via American brokers that have access to at least two alternative trading systems. Bruce ATS helps brokers satisfy the requirement from the South Korean regulator.

“The need to get infrastructure right is extremely important,” Wallach said — adding that a robust and trustworthy trading system must be in place, given the likelihood of increased demand and the possibility that U.S. regulators won’t be up overnight to step in if something goes wrong.

More than anything, Wallach said, “it’s about bringing established technology already tested and proven for core-session trading to the overnight market to provide the guardrails, stability and transparency that brokers and investors expect — creating a safe, compliant venue for serious trading after the bell.”

The U.S. currently has three key alternative trading systems that can handle overnight sessions for U.S. stocks in the future: BOATS, Bruce ATS, and Moon ATS, the latter of which is owned by OTC Markets Group. Major broker-dealers work with these alternative trading systems to provide their clients with extended-hours trading.

“We firmly believe that we are at a point now where, with three ATS, we have an ecosystem that can support the demand for resiliency expected of U.S. markets,” Wallach said.

While there’s been a good deal of progress made, the NYSE, Nasdaq and Cboe have released “very little new information on timing,” noted Wallach, adding that he has not heard of anything final. In addition, although the DTCC appears to be on track to increase its clearing hours to support extended overnight trading of U.S. stocks by June of next year, “SIPs need to be operating” during those extra hours, he said.