The World Federation of Exchanges (“WFE”), the global industry association for exchange groups and central counterparties (CCPs), has published new Research highlighting the challenges extended hour trading pose to current post-trade infrastructure, particularly with respect to wider industry synchronisation, liquidity, and risk.
Realising the full benefits of extended trading calls for the modernisation of existing market infrastructure. Without parallel adjustments to the broader financial ecosystem, operational frictions and settlement mismatches may arise, particularly during weekends and holidays.
Through case study analysis of foreign exchange (FX) and cryptocurrency markets, the paper illustrates the feasibility of round-the-clock trading and the importance of synchronised support systems for an effective capital market. The paper titled, Extending Exchange Trading Hours, authored by Dr Kaitao Lin, Senior Financial Economist at the WFE:
- Maps the current landscape of trading hours across 60 security exchanges, revealing significant regional variation and historical evolution in trading session design.
- Discusses exchange-led initiatives, specifically U.S. exchanges, such as the proposed extended trading hour models by NYSE Arca, Nasdaq, and Cboe Global Markets.
- Identifies potential frictions in post-trade infrastructure, especially settlement mismatches due to asynchronous operating windows of central securities depositories (CSDs), central counterparties (CCPs), and real-time gross settlement (RTGS) systems.
- Analyses potential temporal misalignments using foreign exchange and Continuous Linked Settlement (CLS) case studies.
- Examines the case of cryptocurrency markets, which offer 24/7 trading but experience lower liquidity, higher volatility, and increased risk of market manipulation during off-peak hours.
Nandini Sukumar, CEO of the World Federation of Exchanges, said, “While around-the-clock trading is technologically feasible and may enhance market accessibility and flexibility, its effective implementation and sustainability depend on deep coordination across trading, clearing, settlement, and regulatory systems. It will rely on the coordination of financial market infrastructure to overcome the challenges to liquidity timing, counterparty exposure, and cash flow alignment whilst maintaining robust mechanisms for price discovery and investor protection.”
Dr Pedro Gurrola-Perez, Head of Research at the WFE, said, “Initiatives in the U.S. are paving the way for 24/5 equity trading, and the industry is working closely with SIFMA and regulators to support the alignment of extended trading hours and required changes to post-trade processes. A potential move to 24/7 trading in any jurisdiction would require more significant transformations across much of the post-trade ecosystem.”
Read the full paper here. Extending Exchange Trading Hours
