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Banks and stock exchanges all around the world seem to adhere to quite a strict regime of 9-5, Monday - Friday, in the countries local time.

This can have the effect of where an event that happens overnight, causes the market to open at an immediate dip as happened recently on Wall Street in response to economic data from China.

The question is - in today's always-on, all connected world, why does this system still remain? I would have thought that for industry that is all about making money, they'd be the first to be always on.

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  • $\begingroup$ It definitely is possible to trade stocks when the exchanges (in the USA and likely in most other places) are closed but due to adverse selection the bid-ask spreads are enormous. And of course banks often don't keep "bankers hours" any more either. My bank branch is open 6 days a week 8-6 and online and by phone 24 hours a day I can pay bills, borrow money, transfer funds, and buy CDs. $\endgroup$ – BKay Jan 5 '16 at 15:39
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The answer is simple and it is due to the conduct of business and conditions relating to the early days of exchanges and banks. Then, there was no interest in trading or providing liquidity to companies 24 hours a day and there was no coordination with the other parts of the world. Today, it is more like preserving the tradition, and just look at how NYSE opens at every morning, the good old bell is there to kick start the business. Today, it may make sense to have 24/7 financial services provision as we are living in the age of internet.

OTC FOREX trading is thriving 24/7. As long as there are willing traders/market makers to remain on the floor on different shifts during working hours.

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One of the key reason is to limit volatility. Indeed, it is sometimes better to have some pauses to calm down any aggressive movements.

That is why most firms hold their earning calls post or pre-market and not during opening hours. It allows analysts to fully integrate the information published by the firm before reacting.

Also, an exchange opened 24/7 would mainly benefit large institutions such as big banks, and probably hurt smaller stockholders, who cannot stay awake at any time to react appropriately to market movement. One could thus argue that the system is fairer as is. Chinese stock markets, which heavily rely on small holders (for the best and the worst) even have a pause at mid day.

However, a lot of firms use ADR and GDR (depositary receipts) in order to be quoted on several stock exchange. Therefore, they might de facto be quoted all around the clock. FX markets and derivatives (in particular OTC) also have larger opening hours than regular stocks. And to add a final element, some stock exchange such as NASDAQ organise a pre-market quotation, which helps determine the opening quote by surveying market participants, though no transactions are involved.

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  • $\begingroup$ I am pretty sure that the main reason is historical - I'd like to see some claims that an exchange has choosen not to expand, because they want to limit volatility. Volatility is how most traders make money - which are the primary costumers of exchange. $\endgroup$ – Thorst Jan 5 '16 at 8:17
  • $\begingroup$ Exchange are also paid by the companies that are traded on them. And those firms certainly appreciate some rest and lower volatility. However I agree with you that the tradition plays an important role in the opening hours. $\endgroup$ – Hector Jan 5 '16 at 8:34
  • $\begingroup$ If I own company A, how does a day-to-day fluctuation mean anything to the daily running of the company? It means nothing, it has no value on the daily runnings. $\endgroup$ – Thorst Jan 5 '16 at 12:04
  • $\begingroup$ I don't think that their is any doubt about the effects of halting trading? We usually assume that it does slow down volatility, which is why China tries to halt trading so often, and why we also implemented such restrictions on our stock exchanges. Sure, a lot of market participants like volatility, but I doubt that firms do, otherwise they would probably release earnings in the midst of the session rather than before/after. Also, the fact that bad news are likely to be released on certain days of the week and at certain times also shows some aversion toward intraday volatility. $\endgroup$ – Hector Jan 5 '16 at 12:37

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