Virginie O’Shea, founder and chief executive of Firebrand Research, explores the possibility of around-the-clock trading, analysing the potential impacts it will have on markets, potential benefits, and whether demand for it exists at all.
The market infrastructure community has been debating the topic of time for the last few years. How late should our markets be open? How fast should settlement be? We’ve moved on, a little, from trading latency to the concept of perpetual markets, but before we head down that route, we should take stock of what it actually means to our own lives.
My last blog was all about people and that’s the thing we need to think about first when it comes to these big market structure questions. Yes, there will always be demand from someone in the market for a 24/7 opportunity to trade – be it night-owl retail traders in domestic markets or international traders who want access to foreign trading in their opening hours. But what impact does this have on the industry as a whole on a global scale?
From a domestic market infrastructure perspective, it means reduced need, or even elimination of the need, for dual listed shares. If you can access them directly in their domestic markets, why would you go anywhere else? The changes in one market, as is always the case, then kick off a veritable arms race in the others. But is this one race that we should be starting?
Before you start emailing me, yes, I know some markets are already open beyond normal trading hours. Yes, I know crypto is one of them. Just because it sort-of works in one market, doesn’t mean it will work in others. And we’ve all heard the liquidity issues that have occurred in such markets.
The recent decision by Robinhood to pause its out of hours trading offering due to concerns about a black swan event caused by geopolitical tensions in the Middle East caused retail trading keyboard warriors to take to social media and complain. If markets that are supposed to be open are closed, clients are dissatisfied. A basic lesson, but extend that to things like Consumer Duty obligations and investor protection requirements. Unhappy clients means unhappy regulators, it means competitive disadvantages, it means reputational impacts.
Moreover, think about the current focus on operational resilience – more hours open means more opportunities for cyber-attacks to happen or outages to occur. Technology isn’t infallible, so that means more oversight. I know some people are going to come back with “but blockchain” or “but artificial intelligence” and my response is the same: technology isn’t infallible. Until Skynet is fully operational and we’re not in control of the world at large, the liability for the resilience, safety and soundness of our markets sits with us mere humans.
And humans need sleep. They have lives outside of work (at least I hope they do!). If everything becomes 24/7, someone is going to have to pick up those oversight responsibilities and the processes that normally get done in the working day that will extend into the middle of the night. Choices always have consequences for someone within your organisation.
Profits might increase a little (as of now, it’s hard to tell how much demand there will be) but what impact will it have on our working lives? That’s the question we should really be asking first.