U.S. equity markets are approaching a significant expansion of overnight trading, with exchanges, broker-dealers and regulators preparing for a December 6 shift that will extend key market infrastructure to support trading for nearly 24 hours a day.

At the Securities and Exchange Commission’s Roundtable on Preparations for 24-Hour Trading on September 17, industry participants said much of the core infrastructure is on track, including securities information processors (SIPs), trade reporting facilities and exchange systems. At the same time, they stressed that the initial rollout represents a first phase rather than a finished market structure.

Overnight trading currently accounts for roughly 1% of total average daily volume, according to Katie Kolchin, Managing Director and Head of Research at SIFMA, who moderated the panel. “We are definitely looking at this in phase one,” she said.

“We’re roughly 1% of total ADV today in the overnight, and then two, we’re going to continue monitoring and watching volumes grow,” she said. The work’s not done,” she added.

One of the central changes comes on December 6, when the SIPs are expected to extend their operations. Josh Burch, Head of Exchange Product at NYSE said both the UTP and CTA SIPs are on schedule: “Both UTP and CTA are fully on schedule to be up and running December 6.”

Kolchin said the industry has worked to harmonize overnight trading around a 9 p.m. to 4 a.m. session, with a one-hour pause between 8 p.m. and 9 p.m. for systems maintenance and market resiliency.

Corporate actions have also been a major area of preparation. Burch said the primary listing exchanges have developed a mandatory regulatory halt framework for certain events during the overnight session, including symbol changes and large dividends. “The north star for us was harmonize it, make it consumable, and have it be something that can go into practice,” Burch said.

Information about those halts will be available through exchange notifications and SIP reference files during the 8 p.m. to 9 p.m. operational pause, he said: “Our intent was to look at the unknown, err on the side of caution, and put in front of participants a protocol that we think is risk savvy and consumable for implementation.”

FINRA is also preparing its Trade Reporting Facilities, or TRFs, which handle reporting of off-exchange transactions in NMS stocks. Robert McNamee of FINRA said the TRFs will extend to 23-hour, five-day operations in December, aligning their schedule with the SIPs. The facilities will operate from 9 p.m. Sunday through 8 p.m. Friday, with a one-hour operational pause each weeknight. “December 6, we are ready to implement then,” McNamee said.

FINRA has published technical specifications and notices and plans weekend testing ahead of the change. McNamee said there are no new reporting fields or modifiers associated with the expansion.

New Guardrails for Overnight Trading

The industry is also introducing a version of the Limit Up-Limit Down framework for the overnight market. Hubert De Jesus, Global Head of Electronic Trading and Market Structure, BlackRock said stocks will initially be permitted to move within a 20% price band around a reference price. Unlike the framework used during regular market hours, trading will simply not occur outside those bands rather than automatically triggering a market halt.

De Jesus said the framework reflects the different liquidity and participation characteristics of overnight markets, but could need refinement as more data becomes available. “Twenty percent is a very crude measure that might be quite large in quite a number of securities, and so as we acquire more empirical evidence of how prices move overnight, it’d be very important to see how we can calibrate those price bands so they could be more relevant to the underlying individual volatility of different stocks and take into account liquidity that you see in different names,” he said.

Heidi Fischer, Executive Vice President, Global Head of Equities and Spot Markets, Cboe also described the initial framework as a starting point. “While the industry has come up with a solution here that is great for a step one and for a phase one, we feel really strongly we need to continue to refine this,” Fischer said. She said static price bands could create problems when significant company news fundamentally changes the value of a stock overnight.

Exchanges Ramp Up Testing and Surveillance

NYSE and Cboe both said they expect to be ready for the December launch. Burch said NYSE will hold four test dates in October and two more in November. A shadow environment will also be available throughout November with test symbols and live market data. Both Exchanges are also extending existing risk controls into the overnight session and preparing staffing to support longer trading hours.

Cboe plans to introduce overnight trading initially on one of its four U.S. equities exchanges, Cboe EDGX. Fischer said there will be relatively few differences between its overnight and regular sessions. The exchange will not accept market orders, while pegged orders will need limits attached. Cboe will also introduce a time-in-force feature allowing participants to set delayed start times for orders. “We do expect to be ready on December 6. Our regulatory team is ready to surveil on day one launch, and we already have our operations team in place and ready to support this as well,” Fischer said.

Surveillance is also being expanded at FINRA. McNamee said the regulator has updated or is updating approximately 70 surveillance models, paying particular attention to risks that could be heightened during periods of lower liquidity and wider spreads. Those include account takeovers, manipulative trading activity and execution-quality concerns.

Institutional Liquidity Expected to Develop Slowly

While infrastructure is moving toward the December launch, panelists were more cautious about how quickly institutional liquidity will follow. Todd Lopez, head of electronic trading, Americas at UBS said large asset managers prioritize liquidity, market impact and execution quality, which could limit early participation. “The sessions are more likely to be used to selectively reduce risk, do some hedging, some event-driven repositioning, and really facilitating international clients,” Lopez said.

He said some of the strongest interest UBS is seeing comes from Asia-based investors, including hedge funds and electronically sophisticated quantitative firms whose investment and risk-management needs extend beyond the U.S. trading day.

From an asset-manager perspective, De Jesus expects a gradual build in institutional activity. BlackRock expects baseline overnight liquidity initially to be largely retail-led, while institutional participation is more likely to be event-driven. “We have to assess whether overnight sessions exhibit sufficient liquidity and market quality to ensure that it can handle institutional-sized order flow as well as deliver appropriate execution outcomes for our clients,” De Jesus said. BlackRock plans to monitor volume, spreads and trading costs while also evaluating its operational workflows, technology requirements and staffing needs.

Investor protection will remain another focus as participation grows. Panelists from broker-dealers discussed measures including limit-only trading, extended-hours disclosures, security eligibility criteria and pre-trade controls. McNamee emphasized that firms’ existing best-execution responsibilities continue to apply overnight. “Best execution is a key investor protection requirement. It’s a big focus for FINRA and for the Commission, and it does apply regardless of when a customer order is received or executed,” McNamee said.

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