SEC Approval of 24-Hour Trading: Potential Harm to Retail Investors

Earlier this week, the Securities and Exchange Commission (SEC) approved an application from 24X National Exchange LLC to register as a national securities exchange and run a trading platform for 23 hours a day, five days a week. This decision has raised concerns among experts, including Director of Securities Policy Benjamin Schiffrin.

According to Schiffrin, allowing trading to take place during hours when liquidity is low and pricing is poor could harm investors and disrupt the markets. The fragmented nature of the overnight markets could lead to increased volatility and less favorable prices, especially for retail investors.

While the SEC argues that 24X will require its members to disclose the risks of overnight trading, Schiffrin believes that disclosure alone is not enough to protect investors. Research has shown that investors often ignore or do not fully understand the risks outlined in disclosure documents, especially when buried in fine print.

One of the concerning aspects of overnight trading is the potential for risky behavior, especially when investors are more susceptible to trading inducements at night. With the ease of trading through technology and push notifications, there is a risk of investors being hooked on trading, similar to the addiction crisis seen in legalized sports betting.

Despite the approval, 24X will need to provide further assurances to the SEC before commencing its overnight trading session. This additional filing will require a careful review by the SEC to ensure that the exchange can meet its obligations under the Securities Exchange Act of 1934.

Overall, Schiffrin urges caution in allowing overnight exchange trading to begin and emphasizes the need for thorough evaluation before final approval.