In today’s Finshots, we tell you why NASDAQ wants to stay open 24 hours and how it could affect global markets.

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The Story

Until 1952, Wall Street didn’t believe in taking Saturdays off. The US stock markets ran for five and a half days a week. Until September that year, when they finally switched to a five-day trading schedule. To make up for the lost hours, they simply stretched weekday sessions by half an hour. It was likely part of a broader post-World War II trend where industries everywhere were moving towards shorter workweeks.

But here’s something funnily interesting. Trading hours have gradually crept upward since then. In 1974, the New York Stock Exchange (NYSE) pushed its closing bell from 3:30 p.m. to 4 p.m., adding an extra half-hour. Then, in 1985, it started opening its doors 30 minutes earlier at 9:30 a.m. Fast forward to October 2024, and NYSE Arca made an even bolder move. It announced plans to extend trading to 22 hours on weekdays.

Yup, you read that right. They want to keep the markets running practically all day, pausing only for a two-hour break to wrap up and reset. But this isn’t some radical idea NYSE cooked up. The US SEC had already paved the way by approving 24-Exchange (or 24X), a new stock exchange designed to allow trading for 23 hours a day, 5 days a week.

And now, the craze is catching on. Just days ago, NASDAQ’s President Tal Cohen revealed plans to enable 24-hour trading on weekdays.

So, why is every stock exchange on Wall Street chasing this ‘why should markets sleep?’ trend, you ask?

Well, you see, trading isn’t what it used to be. Gone are the days when traders had to physically crowd the stock exchange floor, shouting buy and sell orders at the top of their lungs. But now all it takes is a few taps on a phone or clicks on a computer. Open your trading app, check your stocks, do a bit of research, hit buy or sell and boom! Your trade is executed in seconds. With that kind of ease, it’s no surprise that more people want longer trading hours. Maybe you’re stuck at work all day and don’t have time to focus on stocks. So, wouldn’t it be nice to trade after hours when you can actually think? That’s one reason for the shift.

But it’s also about globalisation. Investors across the globe are trading in markets outside their own countries. And we’re not just talking about big institutions, but regular retail investors too. As Cohen pointed out, foreign holdings of US equities hit a staggering $17 trillion in June 2024. That’s a whopping 97% jump since 2019. And that also means over a quarter of the total $62 trillion US equity market is now held by investors outside the country. Take the Asia–Pacific region, for instance. Investors there are drawn to the depth of the US markets and access to booming sectors like tech and healthcare. But time zones are a problem. When the US market is open, these investors are often asleep. And by the time they wake up, they’ve already missed the action. Longer trading hours solve that.

Then there’s price discovery or the process of figuring out the right price of a stock based on market conditions. The more time people have to trade, the quicker stock prices can adjust to news and events as they unfold, rather than waiting for the next day’s opening bell.

And, of course, the ones who benefit the most? The stock exchanges! They earn fees from every trade. So more trading hours naturally mean more trades, and more trades equal more money in their pockets.

But hey, there’s a reason why stock markets have always had fixed trading hours. It’s because fixed timings play a crucial role in keeping markets efficient, especially when it comes to liquidity.

Think about what happens when trading volumes are low during certain hours of the day. Orders don’t always get executed at the right price because there just aren’t enough buyers and sellers. A classic liquidity problem.

So, what do traders do?

They wait until the market’s closing time. Because when traders know there’s a fixed deadline, they also know that everyone else is rushing to settle their positions before the bell rings. That last-minute surge boosts liquidity and makes trades easier to execute. It’s something called endogenous behaviour, which is a fancy way of saying that when people expect a market event like closing time, they adjust their actions, accordingly, leading to higher participation and better efficiency.

You could compare it to a small town with just one grocery store. If the store has fixed hours, customers can plan their shopping, and the store can prepare for peak demand. Maybe it even offers discounts at certain times to attract more buyers. But imagine if the store never closed. People would trickle in at random hours, and the bustling energy of peak shopping times would disappear.

That’s exactly what could happen with stock markets if they stay open round the clock. Liquidity might get spread too thin. Sure, there would be more trading opportunities, but what if there aren’t enough buyers and sellers at certain times, especially late at night? A single big trade could cause wild price swings, leading to more volatility. And this could be true especially for stocks with already low liquidity or small market capitalisation.

Then there’s the effect on corporate announcements. Companies like to control when investors receive news about them. Earnings reports, for instance, are usually released before or after regular market hours to prevent massive panic-driven buying or selling. But with 24/5 trading, that buffer disappears. Stocks could react instantly to every piece of news, leading to impulsive trading and even more unpredictable swings. That’s not great for them or for the market.

And the biggest twist? Longer hours might end up costing stock exchanges more. 

Just think about it. Extending trading hours doesn’t just mean letting computers do all the work. You still need people — traders, brokers, compliance officers, exchange staff, working in shifts to keep things running smoothly. More hours mean hiring more people, and that’s an added expense.

And there’s also the lingering issue of settlements. Unlike crypto, where transactions happen instantly, US stock markets still operate on a T+1 settlement cycle. Meaning, trades don’t settle the same day (T+0). Instead, if you buy or sell a stock, it takes a day before the shares actually hit or leave your demat account. India has already started experimenting with T+0 settlements for a few stocks, but the US hasn’t. So in a market that never sleeps, settlements still lag behind, and that makes NASDAQ’s dream logistically complicated.

If trading runs 24/5 with no breaks, when does the exchange actually pause for system maintenance and clearing? Right now, exchanges rely on those overnight hours to reset and prepare for the next day. And without a pause, things could get messy.

Interestingly, a research paper backs this up. It says, “We estimate that, as long as there is a closure for some time, most of the benefits are accrued, implying that it is likely a 23/7 exchange would be beneficial over the current popular market design of 6.5/5.”

In other words, markets could stay awake, but perhaps they shouldn’t stay awake all night. And having a break would still be valuable.

So yeah, continuous trading might seem like the future, especially with crypto markets never sleeping. But the reality is that the stock market is different, and its setup might not be ready for this shift just yet.

We’ll leave you with that thought.

Until next time…

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