Why SEC’s Approval of 24-Hour Trading Poses Risks for Retail Investors
The Securities and Exchange Commission (SEC) recently approved an application from 24X National Exchange LLC (24X) to register as a national securities exchange and operate a trading platform that will run 23 hours a day, five days a week. While this might sound like a good idea, Director of Securities Policy Benjamin Schiffrin has some concerns about the impact it could have on investors and the markets.
Schiffrin believes that allowing trading during low liquidity hours when prices are less favorable could harm investors. Trading overnight may lead to more volatile prices and fewer buyers and sellers, especially impacting retail investors who may end up losing money if they trade during these hours.
Although the SEC requires 24X to disclose the risks of overnight trading, Schiffrin argues that disclosure alone may not be enough to protect investors. Research has shown that many investors do not act on warnings buried in lengthy documents, and this type of disclosure may not effectively safeguard investors.
Another concern is the potential for financial firms to use push notifications and other prompts to encourage trading during the night, when investors may be more susceptible to risky behavior. This could lead to a situation where investors are trading impulsively, similar to what has been seen in the sports betting industry.
While 24X will have to provide further assurances before starting its overnight trading session, Schiffrin suggests that the SEC should take a closer look at the potential risks of 24-hour trading before granting final approval. It’s important to carefully consider the implications of allowing trading to occur round the clock before making a final decision.
