The news broke today that the Nasdaq has filed papers with the SEC to open trading 23 hours a day. The plan includes closing for one hour to settle. This may sound like a good idea, but the ramifications could be catastrophic. The problem lies with liquidity and the ability of people to make investments.
The people who would benefit from a move like this are institutional investors who can afford to staff and equip computers to execute trades on their behalf during extended hours. CNBC reported that some experts believe this move could lead to significant price fluctuations. These price swings will hurt individual investors in their brokerage accounts and retirement accounts.
With the potential for an AI bubble and the sell-offs that have been seen in tech stocks, increasing trading hours could exacerbate those sell-offs. While we sleep, our investments may be losing value at a rate that exceeds our risk tolerance. The markets already have a reputation for not being fair, but this move will increase that notion, driving investors to the DOW and the S&P.
Those investors holding index funds that track the S&P and the DOW will benefit. However, we may also see an increase in cash balances. If we see an increase in cash balances, it is possible that some high-interest-rate online savings accounts could raise their rates to compete. If an investor is earning an average of 3% in the Nasdaq and the high-rate savings account is paying 3.75%, investors will move.
There is also the potential for another tech crash. Stocks will become overbought, driving prices up. When stocks become overbought, a correction is likely to occur. Once the correction takes place, investors who are not part of the overnight trading will lose a lot of money.
This move will also hinder the release of company information. Stocks fluctuate regularly, but tend to move more significantly following the release of new information. These releases could be earnings, executive changes, mergers and acquisitions, or insider buy and sell activity. The extension of the trading day will allow these swings to persist for hours, rather than giving the markets a chance to digest the information.
This decision should not be taken lightly by the SEC. They need to consider how the process will impact the individual, while institutional investors will reap all the profits. The bottom line is that it will make the trust in the markets even shakier than it already is. It will increase the distrust in Wall Street even more, showing that the Street is full of greed with no regard for the little guy.
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