This is an audio transcript of the Behind the Money podcast episode: ‘Can NYSE stay up all night?’
Michela Tindera
The New York Stock Exchange is an institution.
Jennifer Hughes
It is one of the most famous exchanges in the world. It’s got this long history. It’s got this big building downtown.
Michela Tindera
And of course, it’s got that bell. (Sound of bell ringing)
Every weekday, Monday to Friday at 9.30am, a bell rings to mark the start of the main trading day.
Jennifer Hughes
It signals that the market is open. Stocks begin trading, companies like Coke, Apple and investors from big institutions to tiny retail traders, sitting on the couch at home — they’re all connected to this.
Michela Tindera
Each day, around $130bn worth of stock is traded on the NYSE. It’s the largest exchange in the world. And to mark the end of the main trading day, the bell rings again at 4 o’clock in the afternoon. These bells, they’ve been ringing like this for a long time.
Jennifer Hughes
So company executives who love their history, they dream about standing on that balcony over that trading floor and ringing the opening bell of this institution, which basically helped form corporate America.
Michela Tindera
Recently, though, the people who run the exchange have been considering making a big change. They proposed extending that day of trading stocks late into the night. But actually making overnight trading a reality is gonna be quite the challenge.
Jennifer Hughes
It’s just a massive undertaking. Think about the computers, the systems, the complexities of all these trades. There’s a lot that could go wrong.
Michela Tindera
So why does the New York Stock Exchange want to stay up all night?
[MUSIC PLAYING]
I’m Michela Tindera from the Financial Times. Today on Behind the Money, we’re looking at where this idea of overnight stock trading is coming from and how it’s affecting the decisions of major public marketplaces like the New York Stock Exchange.
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Trading stocks overnight is pretty new in the scheme of things. But as US markets editor, it’s a trend that my colleague Jennifer Hughes has been watching with a lot of interest.
Jennifer Hughes
It’s about less than two years, really, 18 months ago, I think, is when a couple of the leading brokers started offering this. Most people like . . . want to sit on the sofa in the evening, they buy stuff on Amazon, they don’t trade Amazon shares. But there is this growing group that will do this, and the main overnight trading venue has volumes of about 40mn shares a night. It’s still a tiny fraction of what the New York Stock Exchange would do on any day, but it has grown rapidly.
Michela Tindera
Brokers like Robinhood that cater to retail traders are leading the charge into overnight trading. And that’s for a few reasons.
Jennifer Hughes
One of them is crypto trading. Crypto trading goes on 24/7. That showed everyone that there is interest in trading around the clock. We also had the growth of retail trading in the US during the pandemic. So you’ve got this sort of group of people who are more keen to trade at different hours. And we’ve also got Asian retail traders. There’s just so much retail trading in Asia and they’re very keen to trade US stocks. They want to trade Apple, Nvidia, Microsoft just like we do.
Michela Tindera
Jenn, isn’t it kind of interesting that such an established, renowned exchange like the NYSE is following the lead of retail traders? I mean, I’ve noticed that typically big financial institutions don’t really seem to care what retail traders are up to.
Jennifer Hughes
You’re right. Normally there’s retail trading and there’s sort of institutional big market trading. And the two of them go side by side, but they don’t necessarily affect each other. One of the things that interested me was the idea that suddenly all these Wall Street types might have their work patterns and flows and habits changed by, you know, a bunch of people trading Amazon at 10pm sitting on their sofa.
Michela Tindera
So as overnight trading has grown in popularity, it’s left the NYSE feeling a bit of Fomo.
Jennifer Hughes
If you’re the New York Stock Exchange, you are one of the most storied and most pre-eminent stock exchanges in the world. And here we have this market that’s growing up, in US stocks, which is what you’re known for. Would you really want somebody else to get that before you?
Michela Tindera
So that’s why the NYSE recently submitted a proposal to the Securities and Exchange Commission that would offer trading during most of the night time. To be clear, those bells that I mentioned earlier are largely symbolic. The NYSE currently has before and after-hours trading sessions that are tacked on to the main trading day. The big change in this new proposal is that they want to have a full 22 hours of trading, Monday to Friday. This would mean starting at 1.30am eastern time and finishing at 11.30pm eastern time. Now, how they pull this all off comes with a lot of questions.
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Now, Jenn, let’s get down to it here. I mean, so what if the New York exchange wants to tack on some extra hours of trading? Can’t they just hire some other staff to come in and do this and work a third shift or something?
Jennifer Hughes
Financial staff can be quite expensive, especially if you want them to work overnight. The issue is really that behind every trade there’s a whole lot of stuff that goes on. This is what we tend to call mid-office and back-office work. So you and I have hit the button, we’ve bought and sold our Amazon stock between us. But there’s two brokers — your broker, my broker — they have to agree the price and the size of the trade. They have to check their systems are all correct. And then they actually have to swap the shares and the money. And bear in mind, there are hundreds of millions of trades done just in US stocks every single day. And now think of how many times your phone or your laptop asks you to do a software update. Right?
Michela Tindera
A lot. All the time.
Jennifer Hughes
Mine, too — drives me nuts. But think how many times we need to do this. And then you think of these really massive, complex systems and suddenly we’re asking them to run basically 24 hours a day with very little downtime.
Michela Tindera
Yeah, that sounds like a lot. But what’s the worst that could happen?
Jennifer Hughes
The risk is that nobody would know quite where the music had stopped. So, for example, you went and put your order in for your Amazon shares and your broker told you it’s done. But the shares get transferred the next day. So have you actually got those shares? And if you haven’t, do you still have your money? Or have you lost your money and your shares? And think of that happening for like a million different trades every day.
Michela Tindera
So it’s pretty crucial to make sure that everything runs smoothly. Say a glitch in a trading system pops up overnight, figuring out who owns what could get very messy. Now, one of the biggest obstacles that the New York exchange would have to figure out is something that’s called the “tape”.
Jennifer Hughes
What exchanges do, because they are public marketplaces, they publish the best price all day long. This is consolidated into something known colloquially as the “tape”.
Michela Tindera
Picture essentially an old-fashioned typewriter, clickety clacking out constant updates to stock price information on long strips of paper. Now, picture that today but it’s happening electronically and a gazillion times faster.
Jennifer Hughes
If you bought Coca-Cola during the New York market daytime, there’s a price every second. Every millisecond, that price is adjusting and moving. Now your broker is required to get you the best price. Behind all of the trading infrastructure, there’s a lot of regulation designed to protect investors. So your broker has to get you the best price available. Exchanges have to publish that best price available all day. Your broker’s computer systems are talking to all the exchanges and finding that best price.
Michela Tindera
Publishing the tape is something that the NYSE has to do during trading hours. It’s an exchange, and that means it has to follow loads of regulations.
Jennifer Hughes
Exchanges are really like marketplaces. They’re where people have got together and establish rules for buying and selling. So everything is fair. The most important principle is that trading is fair and transparent. Exchanges are the important bit for the purposes of 24-hour trading because they come with all the infrastructure to make sure the people got the best price. They publish the records of trading prices, that sort of thing.
Michela Tindera
But Jenn says that transitioning that tape to tick around the clock will be the New York Exchange’s biggest hurdle to jump.
Jennifer Hughes
That’s just going to take time. And someone’s gonna have to decide whether they’re prepared to spend the money. Do they need to overhaul the system? Do they just need to upgrade the system? What does it require to run reliably for all this time?
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Michela Tindera
Jenn, so we’ve talked about the so-called tape and the obstacles that come with that in an overnight trading environment. But are there any other concerns that we should be thinking about or other big steps that the New York exchange or other exchanges need to take?
Jennifer Hughes
It’s not just the exchanges, it’s the brokers as well. It’s making sure that everybody’s systems have enough time to do this. I mean, over the years, the trading systems have become so much more sophisticated. The amount of trading they can handle now versus a few years ago is incredible. But you still need time to test things to make sure things work. And we’re not sure just how much, at the moment, how much time that takes.
Michela Tindera
OK. So whose jobs or lives are likely to change the most with moving overnight? Is it mostly the traders?
Jennifer Hughes
It’s probably going to be more. To begin with, it would be the operations people, the people who have to deal with that reconciling of the trade behind the scene — the market plumbing, if you like that analogy. Those are the guys that are probably going to have to work on a tighter timetable to make sure things are done, when there is downtime, there’s going to have to be some human oversight of that. And almost certainly in the US as well. You can’t just hand it all over to a few extra staff in Asia, most likely, certainly not to begin with.
What you might get for the traders and the investors, the front office staff, I mean, what they fear is they will get more calls out of hours. It’s not often that a trader . . . you know, they act for other people a lot of the time. So it could be the trader goes, hey, this price has moved, did you want to trade at this price? And what if that call comes through at 11pm? That’s not going to be brilliant for your quality of life as an investor if you’re answering calls at 11pm as well as first thing in the morning.
Michela Tindera
Yeah, it’s just a job that kind of never ends in that scenario.
Jennifer Hughes
A bit like being a journalist.
Michela Tindera
Yeah, that’s . . . I’m sure plenty of people already feel that way. But another group to be included in that.
Jennifer Hughes
Yes, we can tell them that we feel their pain.
Michela Tindera
So if the New York Stock Exchange goes ahead with overnight trading and this gets approved, what do they stand to win?
Jennifer Hughes
It could be a lucrative market, should it turn into that. It could be prestige. It could be just keeping their place as the pre-eminent exchange. It could be marketing to the Asian day traders. It could be a bit of all of that. But clearly they felt it’s worth their while to go into something quite unproven, certainly in terms of trading volume and likely profitability, but get in there first and see where it’s going and probably, because they’re so big, direct how it goes as well, or help steer the direction in which this heads.
Michela Tindera
Are there any losers in this scenario?
Jennifer Hughes
People with sleep problems or people who will develop sleep problems? There aren’t necessarily losers. It depends how the trading goes. It could be that the other exchanges that don’t move as fast as the New York Stock Exchange may lose out, but I don’t have any massive losers.
Michela Tindera
So when should we expect to kind of understand if this is actually happening? What’s next?
Jennifer Hughes
There are a few steps to go. First of all, the New York Stock Exchange proposal, it’s currently before the Securities and Exchange Commission, the SEC. So it needs approval. We’ll see how that goes. The SEC could come back with questions. That could be a longer process. We’ll just have to see how that plays out.
Cboe, the Chicago exchange, has also said they’re putting in a proposal. Now, we might get to a point, which some other people have already called for the market where instead of just saying yes to this exchange and yes to the next one, the SEC calls a bit of a pause on the whole thing and says, OK, OK, let’s consider this holistically. What do we want this market to look like? Do we want to go from 8pm in the evening? Do we want to have a break for two hours at the change of the day and come up with a single structure? Because what’s been notable about our conversation and all the conversations I’ve had about this is the amount of unknowns, the amount of ifs in all of this still. You get traders like what if this and what if this? We just don’t have the answers. And I mean, sometimes traders feed off volatility and the unknowns, but not when it comes to the market structure they trade upon.
Michela Tindera
Yeah, you can have the volatility and chaos within the structure.
Jennifer Hughes
You need two people with a different view of the price of Coca-Cola shares to make a market. Because you and I, you know, we might both be trying to buy at this price and it will push it higher. But yeah, if you’re not sure of the structure you’re trading on or the rules around trading, then this could all go horribly wrong.
Michela Tindera
So I know this is quite forward-looking, but we spent a good amount of time discussing all these different complications that could come up. So I’m just wondering, is all this effort gonna be worth it for the New York Stock Exchange, you know, at the end of the day?
Jennifer Hughes
At the moment, I would say there was more pride than profit in this. But down the line, who knows? If overnight trading really grows and really becomes a thing and the US stock market is effectively open 24 hours a day, the exchange that was the first mover in this space may well have an advantage and may well make more money out of it.
Michela Tindera
So final question, if the New York exchange does switch to overnight trading, what happens to the closing bell?
Jennifer Hughes
There will still be a closing bell, of that, I’m pretty sure, and it will still be 4pm. I mean, there’s a lot of technical reasons to keep it at that time, but let’s face it, most of us still prefer to work in the daytime.
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Michela Tindera
Behind the Money is hosted by me, Michela Tindera. This episode was produced by me, Saffeya Ahmed and Katya Kumkova. Sound design and mixing by Sam Giovinco and Joseph Salcedo. Original music is by Hannis Brown. Topher Forhecz is our executive producer. Cheryl Brumley is the global head of audio. Thanks for listening. See you next week.