Blue Ocean, the US overnight trading platform, has completed a fix for its capacity issue
The company Blue Ocean Technologies LLC announced that it completed an upgrade to its trading platform on Monday, which will increase capacity by several hundredfold. This comes two weeks after the overnight trading system of the platform crashed during a sell-off in global markets.
The fix highlights the need for upgrades in order to cope the massive growth of retail overnight trading. This is especially true as investors attempt to cope or exploit the market volatility caused by geopolitical issues, uncertainty about U.S. Interest Rates and election turmoil.
Blue Ocean, a privately-held company, operates an alternative trading system in the United States, a platform which matches buyers and vendors, and underpins overnight trades for Robinhood Markets Inc. and 19 other U.S. registered broker-dealers.
Its system, however, was unable cope with an increase in trading activity that occurred earlier this month. This surge came after disappointing U.S. job data and the unwinding of a carry trade on yens triggered a sell-off globally and an increase in volatility. This left Robinhood's customers unable place trades. The outage affected only the last few hours during the overnight session on Sunday/Monday.
Brian Hyndman told an interviewer last week that Blue Ocean had "capacity issues". We knew the demand would be high late last year based on how many subscribers and marketmakers were coming onto the platform.
Blue Ocean completed its migration to the Members Exchange (MEMX) technology system on Monday. This Wall Street-backed exchange was launched in 2020 and will allow Blue Ocean's capacity to be dramatically expanded.
This is measured by the number of messages - from price quotes to confirmatons - that can be handled. Hyndman stated that the upgraded platform can handle 35 billion messages in an 8-hour overnight session. This is up from 50 millions.
Blue Ocean signed its technology agreement with MEMX back in January. However, the transition was not made quickly enough to avoid its old system from collapsing during the August 4-5 sale.
Hyndman stated that they were aware of the limitations of the system and asked their clients to reduce activity because "we knew it would be a big evening". "The demand was still too high," he said.
Blue Ocean was forced to shut down its system just after 3 am ET on August 5. They also limited the number of securities that their clients could trade. On August 5, Blue Ocean had to close its system shortly after 3 a.m. ET and then limit the number of securities that clients could trade.
Vladimir Tenev (CEO of Robinhood) described the events in an earnings conference as "very frustrating", but said he was confident the technology upgrade would enable more overnight trading volume.
Overnight Trading is Growing Fast
Overnight trading is a way for traders to buy and sell stocks between 8 pm and 4 am. The ET window is the time between the close of U.S. markets and the start of pre-market trading the following morning. This allows overseas investors to trade during regular hours, while U.S. traders can gain an advantage if there are big news stories after normal trading hours.
Overnight trading is on the rise. It is still a retail-driven phenomenon, and it represents a small fraction of trading volume.
Robinhood refused to disclose the exact overnight trading volume on its platform. Tenev, however, told analysts during a earnings conference call earlier in the month that it is approaching 30 billion dollars daily, up $10 billion from May 2023.
Interactive Brokers said that since November 2022, when it launched overnight trading, the company has seen a 446% increase in volume in its first seven months in 2024. Overnight trades now represent 2.5% of U.S. trading.
The Steve Cohen-backed Bermudan trading platform 24Exchange also seeks regulatory approval to provide 24/7 trading of U.S. stock. (Reporting and editing by Michelle Price, Nick Zieminski and Suzanne McGee)
(source: Reuters)
