Extended Hours Trading

NEW FOR 2025

Regulatory Obligations

Over the last few years, trading in NMS stocks and other securities has increasingly stretched beyond regular trading hours (i.e., 9:30 a.m. to 4:00 p.m. ET). As a result, FINRA has observed a growing number of firms offering varying degrees of extended hours trading services, in some cases including the overnight period of 8 p.m. to 4 a.m. ET.

FINRA Rule 2265 (Extended Hours Trading Risk Disclosure) requires that firms that permit customers to engage in extended hours trading provide customers with a risk disclosure statement. In addition, if the firm permits customers to engage in extended hours trading online, or open accounts online in which the customer may engage in extended hours trading, the firm must post a risk disclosure statement on the firm’s website in a clear and conspicuous manner. The risk disclosure must address, at a minimum, the six specific risks identified in Rule 2265, and firms must also consider whether to develop and include additional disclosures as necessary to address product-specific or other specific needs.

Firms that participate in extended hours trading must also comply with other FINRA and SEC rules applicable to such trading, including without limitation FINRA Rule 5310 (Best Execution and Interpositioning), and must ensure they meet their supervisory obligations for extended hours activity under FINRA Rule 3110 (Supervision).

Findings and Effective Practices

Findings

  • Inadequate Supervision: Failing to maintain reasonably designed supervisory systems and controls, including with respect to the identification and reporting of potentially manipulative activity conducted in after-hours trading.1
  • Reporting Failures: Failing to report to FINRA’s Trade Reporting Facilities (TRF) or CAT required information arising from activity conducted during extended hours trading.

Effective Practices

  • Best Execution Reviews: Evaluating how extended hours orders are handled, routed and executed in regular and rigorous best execution reviews to confirm that the firm’s practices are reasonably designed to achieve best execution.
  • Customer Disclosures: Reviewing customer disclosures about the risks of extended hours trading to ensure that such disclosures address, at a minimum, the risks enumerated in FINRA Rule 2265; evaluating whether any additional product-specific or other disclosures may be necessary to address other risks related to extended hours trading; and reviewing any customer disclosures about the firm’s customer order handling procedures.
  • Supervisory Processes: Establishing and maintaining reasonably designed supervisory processes that address any unique characteristics or risks of extended hours trading, such as customer order handling and volatile or illiquid market conditions.
  • Operational Readiness, Customer Support and Business Continuity Planning: Evaluating unique operational readiness and customer support needs during overnight hours, as well as the availability of backup trading arrangements during trading sessions that are offered to customers and considering appropriate communications with customers about potential service interruptions.

Additional Resources

  • FINRA Rule 2265 (Extended Hours Trading Risk Disclosure)
  • Investor Insights—Extended-Hours Trading: Know the Risks (July 31, 2024)
  • Regulatory Notice 21-12 (FINRA Reminds Member Firms of Their Obligations Regarding Customer Order Handling, Margin Requirements and Effective Liquidity Management Practices During Extreme Market Conditions)

Upcoming Trade Reporting Enhancements for Fractional Share Transactions

  • FINRA’s trade reporting rules generally require firms to transmit last sale reports of transactions in NMS stocks to a FINRA trade reporting facility (TRF) or the Alternative Display Facility (ADF) and OTC equity securities to FINRA’s over-the-counter trade reporting facility (ORF). Firms must transmit these reports as soon as practicable, but no later than 10 seconds after execution.2
  • Under the applicable trade reporting rules, each last sale report must include the number of shares in the transaction.
    • However, while firms may execute transactions in fractional share amounts, the FINRA facilities do not currently support the entry of fractional share quantities.
    • Therefore, trades in fractional share quantities of less than one share must be reported by rounding up to one share in the “Quantity” field. When reporting a trade for a fractional number of shares greater than one, the firm must instead truncate the quantity and report the whole number portion.3
  • FINRA is planning to implement enhancements to the FINRA facilities to support the reporting of fractional share quantities.
    • Upon implementation of the enhancements,4 FINRA will add a new “Fractional Share Quantity” field in addition to the existing “Quantity” field. Firms will continue to populate the “Quantity” field as they do today using whole numbers (with fractional amounts either rounded up or truncated, as described above).
    • However, for a transaction with a fractional component, firms will also be required to populate the new “Fractional Share Quantity” field by entering the entire quantity of the trade, including the fractional component up to six digits after the decimal. The “Fractional Share Quantity” field must remain blank for trades with whole number quantities (no fractional component).
    • Firms that do not engage in fractional trading will not have to make any reporting changes.
  • For additional guidance concerning these upcoming enhancements, please see Trade Reporting Notice 3/22/24 (Advance Notice: Upcoming Trade Reporting Enhancements for Fractional Share Transactions).
Previous:
Market Access Rule
Up:
Extended Hours Trading
Next:
Financial Management

1 See the Report’s Manipulative Trading topic for additional guidance.

2 See FINRA Rules Series: 6200 (Alternative Display Facility); 6300A (FINRA/NASDAQ Trade Reporting Facilities); 6300B (FINRA/NYSE Trade Reporting Facility); 6380A (Transaction Reporting) for NASDAQ TRFs; 6380B (Transaction Reporting) for NYSE TRFs; 6620 (Reporting Transactions in OTC Equity Securities and Restricted Equity Securities); 7100 (Alternative Display Facility); 7200A (FINRA/NASDAQ Trade Reporting Facilities); 7200B (FINRA/NYSE Trade Reporting Facility); and 7300 (OTC Reporting Facility).

3 See questions 101.14 and 101.15 of FINRA’s Trade Reporting Frequently Asked Questions. In contrast, firms are currently required to report order, route and trade events in NMS stocks and OTC equity securities to the CAT Central Repository, including any fractional share quantity up to six decimal places.

4 FINRA may phase implementation of the fractional share reporting enhancements, for example to begin reporting for NMS stocks at an earlier date than for OTC Equity Securities. Firms should report consistent with FINRA systems and notices regarding fractional share reporting.