A surge of enthusiasm from Asia is creating a 24-hour retail market for US-listed companies, underscoring New York’s position as the world’s home for share trading.
US brokers and trading platforms say activity in the so-called overnight period between 8pm and 4am eastern time has risen sharply this year, driven by demand from smaller investors in Asia and Europe.
The shift comes after the benchmark S&P 500 rose by almost a quarter this year, and closes in on its all-time high, and the US continues to pull in initial public offerings from companies around the world.
A total of 40.6mn shares worth $405mn changed hands on Blue Ocean Technologies in a record session earlier this month, while its 28mn average so far for December is 55 times its level a year earlier. Blue Ocean is the main regulated trading venue for individual US stocks overnight.
“The world changed with the pandemic and with crypto trading 24-seven. Everybody has the infrastructure and the support to handle trading overnight now,” said Brian Hyndman, chief executive of Blue Ocean, which went live in June 2021. “And for many of our subscribers, it’s not overnight. It’s actually their daytime.”
The volumes are barely a drop in the bucket for exchanges such as Nasdaq and NYSE, which between them host trading in about 3.5tn shares daily.
Even so, the volumes potentially signal the start of turning the US equity market into one more akin to markets such as Treasuries, major currencies and leading stock index futures, which can be traded more or less around the clock from Monday to Friday. Historically activity in individual US stocks — as with stock markets elsewhere in the world — has been more tethered around stock exchange opening hours.
More than 4,000 different stocks traded during November, Hyndman said, in a sign that interest extends beyond the biggest names such as Apple or Microsoft.
The rise of “back-of-the-clock” dealing is luring more brokers to offer an overnight service. App-based broker Robinhood, which became a household name during the meme stock mania in 2021, became the first to offer overnight trading in individual stocks to retail investors in June.
Weeks later Interactive Brokers began offering more than 10,000 stocks overnight, seven months after it first kicked off a round-the-clock service with a handful of exchange traded funds. Blue Ocean said it was in discussion with other brokers in the US and abroad to offer its service to their clients.
Connecting Asian retail investors with US night-owls has been crucial to building Blue Ocean’s activity. About 70 per cent of the venue’s volume comes via Asia, where it has ties with brokers in Hong Kong and South Korea, and is building them in Japan, where the Tokyo Stock Exchange took a 5 per cent stake in September.
Like the US, active retail trading is a long-established element of many Asian markets. Japan’s fictional Mrs Watanabe is considered the archetypal Japanese retail trader. In October, the scale of South Korean retail traders’ leveraged tech bets grew so great that regulators in Seoul cracked down.
Interest from other countries is a lure for brokers looking overseas for expansion. “If I was just serving the US I wouldn’t race to offer it because I just don’t think you’re going to get enough demand,” said Steve Sanders, head of marketing and product development at Interactive Brokers.
He said more than 80 per cent of the company’s new accounts were outside the US, from institutional investors. “They’d told us that they’d be interested in doing this,” he added.
Robinhood has since positioned its overnight service, covering more than 200 stocks and ETFs, as a central plank for its forthcoming UK business.
“If you were designing the market from scratch today . . . you would probably build in fractionalisation [of shares] . . . and 24-hour trading,” Robinhood founder Vlad Tenev told the Financial Times. “With recent markets like crypto, those are just two essential aspects and it’s because its unencumbered by bricks and mortar.”
But for some, talk of a boom in overnight trading is premature, having seen many initiatives over the past decade fizzle out.
Institutional activity is muted, in part because they usually require more in terms of market depth, credit and settlement from banks as well as technical support and specialist professional help to ensure their orders are not exploited by the market.
Retail traders overnight are only able to use a type of market order known as a limit order. That means they cannot simply instruct their broker to buy or sell, but must set the price at which they’d trade. If no one takes that price, the order expires in the morning.
Schwab launched round-the-clock trading in 2018 with 24 ETFs, which trade assets like gold and oil. Nearly six years on, the service is still restricted to the same securities.
“There are different risks in overnight trading,” said Ovi Montemayor, head of market and execution services for Charles Schwab. “We’re offering ETFs correlated to products with active markets that should be moving at that time rather than securities that could be susceptible to lower or variable liquidity.”
For some, extending the trading day into the quietest hours would not fix some of the longstanding problems of US stock markets.
“Lack of liquidity is already a big problem for the institutional buy side. So is the risk of failed trades and other settlement issues, let alone staffing,” said Jesse Forster, equity market specialist at consultancy Coalition Greenwich. “Unless those are worked out then overnight trading is a nice-to-have market, but it will probably remain just a retail one.”
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