The Nasdaq 23/5 Trading Model: A Strategic Shift in Global Equity Market Access and Liquidity Dynamics

The Nasdaq 23/5 trading model represents a seismic shift in the U.S. equity market structure, extending trading hours to 23 hours per day, five days a week. This model, set to launch in late 2026 pending regulatory approvals, splits the trading day into two sessions: a 16-hour day session (4:00 a.m. to 8:00 p.m. ET) and a 7-hour night session (9:00 p.m. to 4:00 a.m. ET), with a one-hour technical pause for maintenance according to finance feeds. The initiative aims to align U.S. markets with global demand, particularly from Asia-Pacific investors, while addressing the evolving needs of institutional and retail participants. However, the model's success hinges on balancing accessibility with liquidity, volatility, and regulatory coherence.

Institutional Investors: Enhanced Flexibility, New Risks

For institutional investors, the 23/5 model offers opportunities to refine risk management and hedging strategies. With technology stocks dominating market movements, institutions increasingly rely on tools like E-mini Nasdaq-100 futures to navigate volatility according to institutional investor insights. Extended trading hours allow for more precise exposure adjustments, particularly in sectors sensitive to overnight macroeconomic or geopolitical events. For example, a hedge fund managing a concentrated tech portfolio could use the night session to hedge risks arising from earnings reports or regulatory developments in Asia or Europe.

Yet challenges persist. The night session's thinner liquidity-expected to result in wider bid-ask spreads and reduced market depth-could amplify transaction costs as research shows. A study by the CME Group notes that during periods of low liquidity, execution prices often deviate significantly from arrival prices, eroding returns according to CME Group analysis. Institutions must also adapt to fragmented liquidity across exchanges and alternative trading systems (ATSs), requiring advanced algorithms and real-time surveillance to optimize execution according to market media.

Retail Investors: Democratization vs. Complexity

Retail investors, who account for 20-35% of daily trading volume in major markets according to trading magazine, stand to benefit from expanded access to U.S. equities during their local business hours. The Nasdaq 2025 ETF Retail Investor Survey highlights that 49% of Gen Z traders engage in weekly trading, with many prioritizing real-time responses to global events according to industry data. Extended hours could empower these investors to act on news from Asia or Europe without waiting for traditional U.S. market open.

However, the model's benefits are tempered by structural risks. Most retail trading occurs off-exchange, where liquidity is less transparent and volatility higher as market analysis indicates. During the night session, trades executed on ATSs or dark pools may face wider spreads and delayed price discovery. For instance, a retail investor buying Tesla shares at 10:00 p.m. ET might encounter a price gap if the stock reacts sharply to an earnings report in Tokyo. Additionally, the proliferation of AI-driven trading tools-while democratizing access-has intensified competition, pushing novice traders to adopt complex strategies they may not fully understand according to retail trader challenges.

Liquidity Providers: Incentives and Structural Challenges

Liquidity providers (LPs) face a dual mandate: maintaining market quality during extended hours while adapting to evolving regulatory frameworks. Nasdaq's new Designated Liquidity Provider (DLP) and Market Quality Stipend (MQS) programs aim to incentivize participation by linking rebates to performance metrics according to Nasdaq announcements. These initiatives are critical, as the night session's lower volumes could deter LPs from quoting aggressively.

Yet structural challenges remain. During periods of heightened volatility-such as the U.S. tariff changes in April 2025-liquidity often shifts from order books to rapid quote refreshes by market makers according to CME Group research. While this preserves execution continuity, it complicates liquidity measurement, as traditional metrics like order book depth become less reliable. LPs must also navigate regulatory demands for best execution during extended hours, requiring robust systems to monitor trade routing and compliance according to Deloitte analysis.

Market Structure Evolution: Globalization and Regulatory Alignment

The 23/5 model is part of a broader trend toward globalized, 24/7 trading, driven by technological advancements and investor expectations. Exchanges like NYSE and Cboe are pursuing similar models, while the Depository Trust and Clearing Corporation (DTCC) plans to enable nonstop clearing by late 2026 according to trade news. This shift demands coordination across infrastructure providers, including Securities Information Processors (SIPs), to ensure data dissemination aligns with extended hours as SIFMA reports.

Regulatory alignment remains a sticking point. For instance, the SEC's Rule 611 and the modernization of the Consolidated Audit Trail (CAT) must evolve to address extended trading's unique risks, such as volatility controls and halts according to SIFMA research. Fragmentation between exchanges, ATSs, and regulatory bodies could undermine market integrity, necessitating standardized governance frameworks as market analysis shows.

Conclusion: A Balancing Act

The Nasdaq 23/5 model is a bold step toward a more globally integrated equity market, offering unprecedented access for investors while introducing new complexities for liquidity providers and regulators. For institutions, the model enhances strategic flexibility but demands advanced tools to navigate liquidity risks. Retail investors gain participation opportunities but must contend with fragmented execution environments. LPs and regulators, meanwhile, face the dual challenge of incentivizing liquidity and ensuring market fairness.

As the U.S. market edges closer to 24/7 trading, the success of the 23/5 model will depend on its ability to harmonize innovation with stability-a balancing act that defines the future of global finance.