The U.S. equity markets are moving toward near round-the-clock trading. On April 10, 2026, the SEC formally approved a rule change extending Nasdaq’s trading hours to 23 hours a day, five days a week (“23/5”).1 Nasdaq’s move follows NYSE Arca, which in February 2025 became the first established exchange to win SEC approval to extend its hours and is now targeting a December 6, 2026, launch of its own 23/5 schedule.2 Both proposals push each exchange well beyond today’s 16-hour day toward nearly continuous trading.
Regulatory Updates
September 1, 2026
Preparing Hedge Funds for 23/5 Trading: Key Compliance, Risk and Operational Considerations
Nasdaq vs. NYSE Arca: The New 23/5 Trading Day (ET)
Block | Nasdaq | NYSE Arca |
|---|---|---|
Daytime | Day Session | Early 4:00 a.m.–9:30 a.m. / |
Pause | 8:00 p.m.–9:00 p.m. | 8:00 p.m.–9:00 p.m. |
Overnight | Night Session | Overnight Session |
Trading Week | Sun 9:00 p.m.–Fri 8:00 p.m. | Sun 9:00 p.m.–Fri 8:00 p.m. |
Bottom Line: Nasdaq and NYSE Arca are running on the same clock, only the labels differ. Both are offering a near-continuous 23-hour trading day broken into a daytime block (4:00 a.m.–8:00 p.m. ET), a one-hour pause (8:00 p.m.–9:00 p.m. ET) and an overnight session (9:00 p.m.–4:00 a.m. ET). The only difference is that NYSE Arca splits its daytime block into three chunks.
Instead of the trading week opening on Monday morning, it will open on Sunday at 9:00 p.m. ET and remain open, with the exception of the scheduled pauses, until Friday at 8:00 p.m. ET. Each nightly pause is reserved for clearing, testing and processing corporate actions such as mergers, stock splits and dividends.
It’s also important to note that the overnight trading windows will not act as a typical trade day. They will run with deliberately limited functionality: limit orders only (no market or unpriced orders), a narrower set of order types and limit order protection (LOP) guardrails. LOP is a built-in safety element that automatically rejects any limit order priced too far from the current market, outside the greater of 10% of the reference price or $0.50, so a mispriced or runaway order cannot execute at an absurd level in thin, volatile overnight conditions.
A 23-hour trading day will be a seismic shift for some managers and a mere speed bump for others, but no one will remain unaffected. Participating in the overnight trading sessions is optional, but experiencing the impact of overnight trading session is not. So, what should managers be doing now to prepare for the expected rollout of 23/5 trading, including NYSE Arca’s currently targeted December 2026 launch?
‘‘
We are moving towards a new day – and night – in the U.S. equity markets. With the expansion to overnight trading, I’m excited at the prospect of U.S. equity markets aligning with those markets that already trade continuously and look forward to balancing round-the-clock trading with all-important investor and customer protections.
— Paul S. Atkins, SEC Chairman
Key Operational and Compliance Considerations for the Night Shift
First, regarding actual participation in the extended trading hours: Both exchanges and the Securities Industry and Financial Markets Association envision a voluntary model. This means your firm can weigh the benefits of participation against the costs of extending your trading, compliance and operations functions to support participation.3 NYSE Arca will even let firms use pre-trade controls to block overnight executions entirely.
Because of their leaner scale, hedge funds and smaller firms will feel this change the most. The core task is clear: evolve operations built for a 16-hour day into operations that can support a 23/5 schedule without a proportional increase in headcount.
The Night Session is the pressure point. It will be thinner, more volatile and structurally different from daytime trading, exposing funds to risks (gaps, wider spreads, unlinked markets, delayed error correction) they rarely face today.
When determining participation, here are the key questions fund managers should ask:
1. Can Your Technology and Trading Systems Support Participation?
This is a systems-and-controls question. The overnight session runs on limited functionality, so firms need to confirm those constraints can be built into their platforms. Specifically, confirm that your order and execution management systems (OMS/EMS) support limit-orders-only routing and will track and alert on any orders that are bounced. Also confirm that your execution assumptions and instructions have been adjusted for the lower liquidity and wider spreads of overnight trading. If your surveillance tools, policies or order-routing logic can’t accommodate the Night Session, identify what technology or policy changes are required to close the gap.
2. Can Your People and Operational Capacity Sustain a Near-continuous Day?
This is a human-capital and throughput question. Even with the right systems in place, the daily maintenance window shrinks from an eight-hour overnight gap to a single hour (8:00–9:00 p.m. ET), the very window lean teams have historically used to reconcile trades, process corporate actions and reset for the next day. Sustaining a 23-hour day means rethinking staffing and coverage models—whether that’s on-call rotations, offshore or follow-the-sun support—so your desk and back office can keep pace without burning out a small team.
3. Are Your Prime Brokers, Administrators, Custodians and Vendors Ready to Support 23/5 Trading?
If the answer to any of these questions is “no,” your firm’s next step is to determine the scope and cost of the changes required to prepare for participation in the extended sessions. Even if the answer is “yes,” readiness is still not complete.
Five Key Areas to Assess Operational Readiness
Firms must also weigh the knock-on demands of actually operating in the overnight session across five areas: surveillance and compliance, risk monitoring, back-office processing, technology and cybersecurity, and documentation and governance. The five sections below unpack exactly what each of these demands.
1. Surveillance and Compliance Capabilities
Managers planning to trade both Day and Night Sessions should ask a blunt question: When our traders are active at 2:00 a.m., is anyone going to be watching? The SEC’s new requirements fall mainly on exchanges and broker-dealers, but advisers still inherit heightened expectations from investors, counterparties and their own compliance programs to reasonably oversee all trading activity whenever it occurs. So, the answer to this question is likely “yes,” at least periodically.
Key areas to assess for the overnight window include the following:
- Trade Surveillance: Recalibrate thresholds for thin, volatile markets more prone to spoofing, layering and manipulation; don’t simply reuse daytime parameters.
- Best Execution: Build new benchmarks for overnight fills, where spread, National Best Bid and Offer, and venue considerations differ materially from such considerations during the day.
- Personal Trading: Confirm pre-clearance, blackout and code-of-ethics monitoring functions when employees can trade overnight.
- Books, Records and Reporting: Account for trade-date logic (a Sunday 9:00 p.m. trade books to Monday) in reconciliations and reporting.
- Written Policies and Compliance Monitoring: Update supervisory procedures and escalation paths to explicitly cover overnight trading.
Finally, do not assume you will have the required coverage. Get written confirmation that brokers, administrators and technology providers will be able to capture and surveil overnight activity. Furthermore, make sure you have adjusted your policies and procedures to capture any new controls or procedures.
2. Risk Monitoring
The Night Session introduces market, liquidity and operational risks that most existing frameworks, calibrated for a 16-hour, higher-liquidity day, don’t fully capture. Overnight markets are expected to see lower volume, reduced liquidity, wider bid-ask spreads and sharper price gaps, with volatility spiking around overseas market moves and after-hours news. The appeal of overnight trading is the chance to act on global market moves and breaking news before the U.S. day opens, yet that is the very window when liquidity is thinnest and risk is greatest.
Managers active in Night Sessions should pressure-test the following:
- Fewer Automatic Guardrails: Daytime safety nets like limit up-limit down bands and circuit breakers don’t fully apply overnight. The Night Session relies on narrower protections, including the “Clearly Erroneous”4 rule and LOP, which won’t stop ordinary price gaps. Expect to rely more on your own limits and controls.
- Margin and Collateral Timing: Prices can gap while the window to calculate and meet margin calls compresses to one hour. Confirm how and when overnight moves trigger re-margining.
- Valuation and NAV: Decide which overnight prices are and aren’t used for marks, so thin-market prints don’t distort valuations.
- Session-Transition Gaps: Model the handoff between the Night Session and the Day Session’s opening cross, where prices can reset.
- Counterparty Capacity: Verify that prime brokers and clearing firms are staffed to let you hedge, borrow or close out positions overnight.
Run compounding stress test scenarios such as a large overnight gap on thin volume, delayed margin resolution and reduced service-provider coverage. A combination of events can hit lean teams hardest.
3. Back-Office Processing
This may be where lean teams feel the change most. As noted before, trading nearly around the clock compresses the traditional overnight batch window to a single hour (8:00–9:00 p.m. ET). Settlement conventions (T+1) won’t change, but trade-date logic does: A trade executed Sunday evening or after 8:00 p.m. on a weeknight will book to the next business day. Firms should map every downstream cutoff, including NAV files, risk loads, prime-broker position files and cash sweeps against the new 4:00 a.m. open and 9:00 p.m. reopen.
Key issues to resolve:
- Fund Administrator: Can it strike NAV and deliver position data on the compressed cycle?
- Clearing Infrastructure: DTCC/NSCC must extend its hours to clear overnight trades, a precondition for launch.
- Reconciliation: Move toward intraday reconciliation and assign clear ownership of overnight exceptions.
- Cash and Funding: Ensure real-time visibility into cash and buying power to avoid funding failures.
- Trade Errors: Evaluate the management and reporting of trade errors overnight to ensure errors can be promptly identified and corrected.
- Coverage and Service-Level Agreements: Confirm in writing that administrators, prime brokers, custodians and OMS/EMS vendors can meet the shortened time frames and consider offshore/follow-the-sun support for overnight exceptions.
The practical direction of travel is clear: more automation, more intraday processing and less reliance on a big overnight batch reconciliation.
4. Technology Upgrades and Cybersecurity
Systems built for a 16-hour day need to be reengineered for near-continuous trading. At minimum, firms should expect to update their OMS/EMS to connect through the exchanges’ designated Night Session ports; recognize the new session identifiers; and enforce the overnight session’s limited functionality, including limit orders only, LOP rejections and blocked order types (Market on Open, Market Maker Peg and others).
Priorities for managers:
- Resilience and Failover: A 2:00 a.m. outage has no “wait until tomorrow.” Confirm redundancy, disaster recovery and overnight on-call coverage.
- Pre-Trade Controls and Kill Switches: Verify functioning overnight risk limits and the ability to block overnight executions entirely, a control NYSE Arca is building in.
- Real-Time Monitoring: Risk and surveillance tools must alert overnight, not just log for morning review.
- Market Data: Confirm your systems receive complete, real-time price data overnight. The consolidated market-data feeds must extend their operating hours first, so watch for gaps or stale pricing in the interim.
- Vendor Readiness and Testing: Confirm that OMS/EMS, data and connectivity providers support 23/5 and participate in the exchanges’ pre-launch testing windows.
5. Documentation and Governance
Whether a firm elects to trade overnight or opts out, it should formally document that decision and the analysis supporting it. Extended-hours participation is voluntary, but the decision should be approved through the firm’s established governance process and revisited as market structure, liquidity, risk and service-provider capabilities evolve.
Managers should update written policies and procedures, trading mandates, risk limits, valuation policies, business-continuity plans and escalation protocols to address the Night Session explicitly. Governance records should identify accountable owners, required overnight coverage, authorized order types, exception-handling procedures and the circumstances in which trading may be suspended. Firms should also review offering documents and investor disclosures for consistency with actual practices and retain written confirmation of readiness from prime brokers, administrators, custodians and key technology vendors.
Timeline, Regulators and Readiness
Expected Timeline
Nasdaq’s proposal has already cleared the hard part—regulatory approval—and now awaits operational readiness before going live. Similarly, NYSE Arca has received regulatory approval and is working toward operational implementation, currently targeted for late 2026.
Both depend on the same industrywide plumbing: The securities information processors must extend their hours so consolidated market data is available overnight, and DTCC/NSCC must extend clearing and settlement to cover the overnight window. Nasdaq must also ready its equity data plans and make a final systems-readiness filing. Once those conditions are met, expect 23/5 trading to take effect in the latter half of 2026 or early 2027.
In short, the question isn’t whether the U.S. markets go live 23/5; it’s when.
Where Regulators Will Focus
As overnight trading moves from proposal to reality, several areas are emerging as likely regulatory focal points for the exchanges and broker-dealers directly and for the funds that trade through them. The SEC has already signaled attention to extended-hours trading in its FY 2026 Examination Priorities, and FINRA has flagged supervision and reporting gaps in overnight activity, pointing to where scrutiny will land: surveillance of manipulation in thin markets, best execution, customer risk disclosures and accurate trade reporting. In approving Nasdaq’s rule, the SEC leaned on three safeguards, each with a practical implication for managers:
- Real-Time Surveillance: The Night Session carries the same real-time surveillance for manipulation and anomalies as the Day Session. Expect the same scrutiny at 2:00 a.m. as at 2:00 p.m. FINRA has already cited firms for inadequate supervision of after-hours manipulation, so recalibrate your thresholds and note that examiners will watch for trades outside overnight price bands or attempts to set them manipulatively.
- “Clearly Erroneous” Rule: The exchange can unwind trades executed at clearly off-market prices across all extended-hours sessions. It’s a backstop for extreme errors only, not ordinary adverse gaps. The catch: Filings received after 8:00 p.m. ET are processed the next business day, so overnight relief isn’t immediate.
- Mandatory Risk Disclosures: While FINRA Rule 22655 applies to FINRA members’ extended-hours customer disclosures (the risks listed below), fund managers should separately assess whether their offering documents, investor disclosures and risk disclosures accurately describe any material overnight-trading risks, practices and associated operational considerations.
Risks that should be disclosed include:
- Lower liquidity
- Higher volatility
- Changing (rapidly moving) prices
- Unlinked markets (no cross-market best-price protection, so identical orders can fill at different prices across venues)
- Exaggerated effect from news announcements
- Wider spreads
- No underlying index/intraday indicative value (derivative securities products)
Around the Clock, Around the Globe: How Kroll Can Help
Preparing for a 23/5 world is inherently a cross-border challenge. The overnight session exists precisely to serve global demand, and the risks arrive from overseas markets while your team sleeps. Kroll’s Financial Services Compliance and Regulation practice is built for exactly that, with compliance and regulatory teams across the U.S., the UK, EMEA, the Middle East and APAC who know the local rules and how they connect.
That same round-the-clock reach extends to cybersecurity. Because overnight trading widens the attack surface at the very hours your team is offline, we back our regulatory support with Kroll’s global cyber incident-response teams and managed-detection-and-response teams, the largest incident-response practice in the industry, operating 24/7 across 19 countries. So, a 2:00 a.m. outage or breach meets a rapid, expert response, not voicemail.
We can help firms get overnight-ready by:
- Assessing readiness across SEC, FINRA and NFA/CFTC requirements and building or updating compliance programs, policies and supervisory procedures for extended hours
- Running mock examinations and independent reviews to test overnight surveillance, best execution and personal-trading controls before regulators do
- Providing retained and outsourced compliance support, including managed services and technology solutions, so lean teams can extend coverage without a proportional increase in headcount
- Coordinating multi-jurisdictional compliance for firms whose overnight activity spans APAC, EMEA and U.S. regulatory regimes, providing a genuine advantage when the trading day no longer stops at a single border
- Strengthening your cyber program before the overnight window opens, with adviser-focused risk assessments, Regulation S-P and incident-response readiness reviews, and controls testing tailored to the added exposure of 23/5 trading
If you’d like to explore how the 23/5 shift affects your firm or how to pressure-test your overnight readiness, our team can help.
Sources:
1U.S. Securities and Exchange Commission, Self-Regulatory Organizations; The Nasdaq Stock Market LLC; Notice of Filing of Amendment Nos. 2 and 3 and Order Granting Accelerated Approval of a Proposed Rule Change, as Amended by Amendment Nos. 2 and 3, to Extend the Exchange's Trading Hours to 23 Hours a Day, Five Days a Week, Release No. 34-105199; File No. SR-Nasdaq-2025-109 (April 10, 2026), https://www.sec.gov/files/rules/sro/nasdaq/2026/34-105199.pdf.
2Release No. 34-102400; File No. SR NYSEARCA 2024 89 — Self-Regulatory Organizations; NYSE Arca, Inc.; Notice of Filing of Amendment No. 2 and Order Granting Accelerated Approval of a Proposed Rule Change, as Modified by Amendment Nos. 1 and 2, to Lengthen Current Extended Trading Sessions (Feb. 11, 2025).
3Securities Industry and Financial Markets Association, Extended Trading Hours, https://www.sifma.org/issues/market-structure/extended-trading-hours (last visited Aug. 7, 2026).
4Nasdaq, Clearly Erroneous Transactions Policy, https://www.nasdaqtrader.com/Trader.aspx?id=ClearlyErroneous (last visited Aug. 8, 2026) (“Clearly Erroneous filings received by MarketWatch after 8:00 p.m. ET will be processed on the next business day.”); see also Nasdaq Rule 11890.
5Financial Industry Regulatory Authority, FINRA Rule 2265 (Extended Hours Trading Risk Disclosure), https://www.finra.org/rules-guidance/rulebooks/finra-rules/2265 (last visited Aug. 8, 2026); see also FINRA Regulatory Notice 14-54, FINRA Reminds Firms of Extended Hours Trading Disclosures (Dec. 17, 2014), https://www.finra.org/rules-guidance/notices/14-54 (enumerating the six primary risks: lower liquidity, higher volatility, changing prices, unlinked markets, exaggerated effect from news announcements and wider spreads).
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