On 20 November, panellists at FIA Expo in Chicago discussed the technological and operational hurdles that market participants must overcome for 24/7 trading in the futures market to become a reality.
Helen Fermor, the chief operating officer of ICE Clear US, said the Intercontinental Exchange group already offers contracts that trade and clear 22 hours a day, but making the jump to 24-hour trading, seven days a week could take some time.
“We have a lot of contracts that are trading and clearing 22 hours a day, five days a week, which means we are already processing a lot of trades outside of standard business hours,” Fermor said. “From a technology perspective, going to a Saturday or Sunday would not be a huge concern. Where there would be a technology lift is in that two-hour window when we do all our end-of-day processing and our technology releases. That jump to 24 hours would be quite big for us.”
Fermor said implementation would have to be done in stages before getting to the point of being able to support 24/7 trading, possibly by extending to 22 hours/seven days a week first.
Francesco Margini, chief product officer, cleared derivatives at ION, one of the main technology vendors for trading futures and options, said that while it is possible to move to a 24/7 model, it is a huge undertaking that would come with significant investments and costs.
“A big consideration is what do we mean by 24/7 trading? Do we mean extending trading and clearing to include a weekend, or do we mean having no downtime whatsoever throughout the year? The latter would entail significant technical challenges and the introduction of a new kind of operating model,” Margini said.
“Typically, weekends are utilised to perform infrastructure, operating system and core application upgrades. You shut the systems down, make the changes, and then you go online again. If you narrow that window, or you remove that window altogether, you would need to implement a new operating model where trading and clearing environments are replicated in real-time to an alternative site and you simply flip over seamlessly, so that you can do the changes you have to do on the primary site.
“Technically, this can be done, but there would be investments and costs associated with the additional infrastructure and environments that you need to operate, which adds to the cost that the industry already bears today for resilience, which is very significant,” Margini said.
“Another consideration concerns all the ancillary systems that support the trading and clearing ecosystem. This will be a significant undertaking from a technology perspective, not only for us who run our system but also for the technology partners that we utilise. Underpinning our solutions are many applications and providers that we rely upon. So again, it can be done, but it's a significant undertaking, and we would need to assess the benefits associated with the additional costs of moving towards a 24/7 model,” he added.
Caroline Pham, a commissioner at the Commodity Futures Trading Commission and sponsor of the CFTC’s Global Markets Advisory Committee, said a GMAC subcommittee has been looking at the possibility of extending the use of distributed ledger technology into collateral management. This technology could be used to tokenise real-world assets such as money market funds, which would allow clients and clearing firms to move collateral and meet margin calls 24/7.
“We have been looking at the opportunities that blockchain technology provides to enable 24/7 trading and instant settlement and clearing,” Phan told the audience. “You need a solution for the cash line as banks don't work 24/7. Until there is a suitable bearer instrument that can move at that 24/7 pace, it's going to be very challenging to enable 24/7 trading.
“We will be having a meeting to vote on a recommendation for non-cash collateral using distributed ledger technology, which is an important way to look at how we could enable 24/7 trading and clearing,” Pham said.
On 21 November, GMAC voted in favour of three recommendations to adopt DLT and tokenised assets as collateral for margin without the need for regulatory changes and to send its recommendations to the full CFTC (see related MarketVoice story). The recommendations do not have the force of official policy until the Commission incorporates them into future guidance or rule-making.
The panellists also discussed the asset classes that are seeing the greatest demand for 24/7 trading. Jeff Arnold, chief operations officer at ABN AMRO Clearing USA, pointed to the equities and commodities markets as examples.
“In the equities markets, they are already talking about 22 hours, five-day trading. That's going to happen, and it will be seven-day trading eventually. Also, the oil markets and big commodities, and as these come, the derivative products that are based on those will then start to follow,” he said.
“It's not an all or none, however. When we talk about 24/7 trading, we're not just flipping a switch and all markets for all things go live. It will be the highest volume, most liquid markets that will be available to clients, and then client demand will follow. As one product becomes profitable, the next product will come along,” he said.
Boris Ilyevsky, the CEO of Coinbase Derivatives Exchange, added that he is seeing a growing demand for 24/7 futures trading in the crypto space, which is the home to round-the-clock trading.
“Crypto has always been 24/7. We launched our futures exchange as Coinbase Derivatives a couple of years ago, and we've built a tremendous amount of retail participation from Coinbase clients and third-party FCMs. There's a lot of built-in demand from Coinbase clients. It’s a spot market that's already very liquid, trades 24/7, and we think we should be getting that pretty quickly on the futures side as well,” he said.
