SEC & CFTC Aim for Harmonized Oversight & 24/7 Trading: What Investors Need to Know

SEC and CFTC Eye Collaboration in Digital Asset Space

The heads of the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) have announced a renewed commitment to collaboration, signaling a "new day" for the two regulatory bodies. The regulators aim to work together to ensure harmonized oversight and promote innovation within the burgeoning field of digital assets. This cooperative effort is part of a broader initiative to develop and mature U.S. cryptocurrency markets and the wider digital asset ecosystem. On Sept. 5, SEC Chair Paul Atkins and CFTC Acting Chairman Caroline Pham outlined a series of new joint priorities. These include streamlining derivatives rules, exploring potential exemptions to facilitate the growth of decentralized finance (DeFi) projects, and expanding equity trading hours, potentially extending to round-the-clock, 24/7 trading.

Moves Toward 24/7 Equity Trading

Investors in cryptocurrency and forex markets are already accustomed to 24/7 trading cycles. However, extending trading hours for equities beyond the traditional 9:30 a.m. to 4 p.m. ET timeframe is also gaining traction. Several brokerages, including Robinhood, Interactive Brokers, and Charles Schwab, already offer some form of after-hours trading. Last November, the SEC approved plans from the 24X National Exchange to provide 23-hour trading days. Both Nasdaq and the New York Stock Exchange (NYSE) are actively exploring options for extending trading hours. Last year, Intercontinental Exchange (ICE), the parent company of the NYSE, expressed its ambition to extend U.S. trading to 22 hours a day, five days a week. Nasdaq is aiming to introduce 24-hour trading five days a week before the close of the year.

Potential Impact of 24/7 Trading on Investors

One key benefit of expanded trading hours for retail investors is increased market agility and accessibility. It allows investors to react to breaking news and events in real-time, rather than being constrained by traditional market hours. While this can be advantageous, it also carries the risk of impulsive decisions, which rarely lead to optimal investment outcomes. Nevertheless, the current trading system disproportionately disadvantages individuals who prefer to manage their investments outside of typical working hours. Extended hours could also be a boon for international investors. According to the World Economic Forum, approximately 18% of U.S. equities are held by foreign investors, and increased trading hours could further incentivize international participation. However, 24/7 trading also presents potential drawbacks. Investors may experience:

• Reduced Liquidity: The NYSE estimates that roughly 11% of equity trading occurs outside of regular trading hours. This can lead to lower liquidity, making it more challenging to execute trades, and potentially resulting in less favorable pricing.
• Wider Spreads: Lower liquidity can also lead to wider bid-ask spreads, increasing the cost of trading. Furthermore, the National Best Bid and Offer (NBBO), which guarantees investors the best available price and tightest spread, is not operational around the clock.
• Increased Volatility: Reduced market participation can amplify price swings. News events can trigger rapid price movements as traders react quickly without necessarily processing information thoroughly.

Preparing for the Evolving Financial Landscape

The financial markets and regulatory landscape are undergoing significant transformation. This is an opportune time for investors to reassess their investment strategies and identify assets that may benefit from these evolving conditions. Strategies to consider include staying informed, maintaining a diversified portfolio, and developing a plan to navigate 24/7 markets. Thoroughly vet any brokerage you use and ensure you understand the associated risks. Long-term investors can mitigate potential risks by conducting comprehensive research and adhering to a well-defined investment strategy, which can help avoid impulsive, late-night trading decisions. The move toward extended trading hours and greater regulatory clarity is a developing story. Staying informed and adaptable will be crucial for navigating the future of finance.