The stock market finds its time
Stock markets are co-ordination games the same way most other physical markets are.
When you go to a physical market to buy vegetables, you expect there to be sellers of vegetables that time. The same way when stock traders put in numbers on their computer, they expect someone else on the other end to buy or sell stocks with them.
The key point about this is that you just need some people to be on the other end. It doesn’t matter too much when it is, but what matters is that someone is there on the other end.
If people mutually agree to meet at a time on the stock market and buy and sell stocks, they don’t need any other entity telling them what to do. Even if that other entity tells them what to do, they don’t necessarily have to listen to them. They can still show up at a common place, at an agreed upon time.
Outside entities are usually powerless in the face of the power of network effects in markets. If the NYSE or stock regulators want stocks to trade between 2 AM and 3 AM, that isn’t going to happen easily. It will only happen if a sufficiently large number of people agree to do so.
That is a good explanation of the US stock market right now. The imposed limit on trading times is 9:30 AM to 4 PM. But the times when the most of the trading is actually happens is 3 PM to 4PM. Bloomberg reports that over the last few days of trading, the majority of it in concentrated in the last hour of market hours. The Wall Street Journal reports the same.
Which means that the majority of traders have made a decision to trade between 3 PM to 4 PM, and it is going to be really hard to change that.
A while ago, Matt Levine at Bloomberg Opinion made a joke/ serious suggestion that we should close down markets for the entire day excpt for a few hours.
To quote him:
Stock trading is extremely quick and efficient; if I want to buy stock and you want to sell it, it takes us a teeny fraction of a second to get that done. The best time for us to trade is when everyone else wants to trade, and in this era of computers and wires and so forth it is not hard for us all to coordinate on some brief window when we can all get our trading done. A half hour is plenty of time for everyone who wants to buy or sell stock to do so; the other six hours are just for old time’s sake, and for hanging around in case something weird happens.
He said it in the context of giving traders a break and so on, but I think the market has done it by itself. People have sorted the optimal time for the market to be open by themselves, and they seem to be doing a pretty good job at it. He’s very much right about
In theory, the NYSE could shut down and open only between 3 PM and 4 PM. Even if they open for longer, the majority of trading will go on in those times anyway.