SERIES 7 | FINANCIAL REGULATION COURSES
FINRA Rule 2265 — Extended Hours Trading Risk Disclosure — prohibits any FINRA member firm from permitting a customer to engage in extended hours trading unless the member has first furnished that customer individually — in paper or electronic form — with a risk disclosure statement highlighting the specific risks of trading outside regular market hours, and additionally requires that any member firm permitting customers to open accounts online in which extended hours trading is available or to engage in extended hours trading online must post the extended hours trading risk disclosure statement on the firm's website in a clear and conspicuous manner — establishing the mandatory pre-participation investor education framework that ensures every retail customer who trades outside regular market hours has received specific disclosure of the material risks that distinguish after-hours and pre-market trading from the regulated environment of regular session trading.
Extended hours trading — the trading of securities outside the regular trading hours of nine-thirty AM to four PM Eastern Time — has grown from a niche institutional practice into a mainstream retail activity as brokerage platforms have progressively expanded their trading hours, with some member firms now offering overnight trading that continues through the overnight period until the pre-market session opens the following morning. The democratisation of extended hours trading through mobile platforms and commission-free brokerage accounts has made the risk disclosure requirements of Rule 2265 more practically significant than ever — the retail investors who are newest to extended hours trading are precisely those who most need the education that Rule 2265's disclosure framework provides.
Rule 2265 was adopted effective March 27, 2009 — consolidating prior NASD interpretive guidance on extended hours trading risk disclosure into a formal rule — and has not been structurally amended since adoption. The 2026 FINRA Annual Regulatory Oversight Report — published December 9, 2025 — identified extended hours trading as a dedicated examination focus area within its Market Integrity section for the first time, highlighting specific supervisory findings including deficiencies in supervision of potentially manipulative after-hours trading activity and failures in trade reporting for extended hours transactions, and providing new specific guidance on supervisory processes for overnight trading that must account for venue-specific overnight price bands.
The Two Delivery Obligations
Rule 2265(a) establishes two distinct and independently applicable delivery obligations that together ensure every customer who can access extended hours trading receives the required disclosure regardless of how they access that capability.
The first obligation is individual disclosure — no member shall permit a customer to engage in extended hours trading unless the member has furnished to the customer, individually, in paper or electronic form, a disclosure statement. The individual delivery requirement — specifically to each customer rather than through a general website posting — ensures that each specific person who engages in extended hours trading has personally received the disclosure. A general website posting of the risk statement alone would not satisfy this individual delivery requirement — it might not be seen by a specific customer even though it is technically available.
The delivery must occur before the customer first engages in extended hours trading — not after the customer has already placed their first after-hours order. The purpose of the disclosure is to inform the customer's decision to participate in extended hours trading — information provided after participation has begun cannot serve that purpose for the initial trades.
The second obligation is website posting — any member that permits customers to open accounts online in which extended hours trading is available or to engage in extended hours trading online must post the risk disclosure statement on the firm's website in a clear and conspicuous manner. The website posting requirement supplements rather than replaces the individual delivery requirement — both must be satisfied for firms with online extended hours trading capabilities.
The clear and conspicuous standard for website posting prevents the risk disclosure from being technically present but practically invisible — buried in a footnote, displayed in unreadably small font, or accessible only through multiple layers of navigation that most customers would not traverse. The disclosure must be genuinely visible and accessible to customers who access the firm's online trading platforms.
The Six Required Risk Disclosures — The Model Statement
Rule 2265(a) provides a Model Extended Hours Trading Risk Disclosure Statement that addresses six primary trading risks specific to extended hours trading — each representing a material way in which extended hours trading differs from regular trading hours and each potentially harmful to investors who are unaware of these differences.
The risk of lower liquidity addresses the reduced number of buyers and sellers available during extended hours — meaning that market participants are fewer and the pool of orders is shallower than during regular trading. Lower liquidity means that a customer's order may only be partially executed or not at all — there may simply not be enough counterparties available to fill the entire order at any price. For investors accustomed to regular hours trading in liquid large-cap stocks where orders are typically filled immediately and completely the possibility of partial fills or no fills in extended hours can be genuinely surprising.
The risk of higher volatility addresses the tendency for prices to move more dramatically during extended hours — because the thinner market means that individual large orders can move prices more significantly than they would in the liquid regular session market. Higher volatility means that the price a customer receives may differ substantially from the price they expected when they placed the order — and that stop orders and other price-triggered orders may execute at prices significantly different from their trigger prices.
The risk of changing prices addresses the disconnection between extended hours prices and regular session prices at the open and close — the price at which a security trades at nine PM may be very different from its price at the regular session close at four PM and from its price at the following morning's open. An investor who purchases at an extended hours price expecting to have locked in that price may find the next morning's open substantially different from their purchase price.
The risk of unlinked markets addresses the fragmentation of extended hours trading across multiple trading systems — different electronic communication networks and alternative trading systems that may display different prices for the same security simultaneously. A customer trading on one extended hours platform may receive an inferior price relative to what was simultaneously available on a different platform simply because those markets are not interconnected in the way that regular session exchange trading is.
The risk of news announcements addresses the particular danger of extended hours trading around corporate disclosures — earnings announcements, merger and acquisition news, regulatory decisions, and other material corporate events are frequently released after regular trading hours or before the next morning's open. When significant news is released during extended hours trading that news can cause immediate and dramatic price movements that — combined with the lower liquidity and higher volatility of the extended session — can produce exaggerated and potentially unsustainable price swings that may reverse when regular session trading begins.
The risk of wider spreads addresses the larger gap between the bid and ask prices during extended hours — meaning the difference between what a buyer must pay and what a seller receives is typically larger than during regular session trading. Wider spreads represent a higher implicit cost of trading that reduces the effective return on extended hours transactions relative to regular session transactions.
Alternative Disclosure Statements
Rule 2265(b) permits member firms to furnish customers with an alternative disclosure statement in lieu of the model statement — provided that the alternative statement is substantially similar to the model statement and addresses at a minimum the same six risks.
This flexibility allows member firms to tailor their extended hours trading disclosures to their specific platforms, products, and customer bases — using language and presentation that may be more accessible or more directly relevant to their particular customers than the model statement's general language.
The substantially similar standard ensures that alternatives do not simply rephrase the model statement's language while omitting substantive content — a disclosure that addresses all six risks but does so in a manner that downplays or obscures their significance would not satisfy the substantially similar requirement even if it technically mentions each risk category.
Product-Specific Additional Disclosures
Rule 2265(c) imposes an affirmative obligation on member firms to consider whether to develop and include additional disclosures in their extended hours trading risk statements as necessary to address product-specific or other specific needs.
The rule specifically identifies several examples of areas requiring additional disclosure consideration — exchange-traded funds whose intraday indicative values may not be calculated or disseminated during extended hours, options trading where extended hours availability and exercise mechanics differ from regular session rules, options exercises during extended hours when the underlying security may be trading at a price that does not reflect the next morning's open, and the effect of corporate actions such as stock splits or dividend payments that occur during extended hours trading.
FINRA has identified CBOE extended hours trading rules as a specific example — CBOE Rule 6.1A includes an additional required disclosure about the risk of lack of calculation or dissemination of underlying index value or intraday indicative value during extended hours trading of certain index options and ETF options. Member firms that offer these products in extended hours must incorporate this or similar additional disclosure into their Rule 2265 statement.
The product-specific disclosure requirement creates an ongoing obligation — as member firms expand their extended hours product offerings to include new instruments the risk disclosure statement must be reviewed and updated to ensure it addresses the specific risks of the newly available products.
The 2026 Annual Regulatory Oversight Report — Current Examination Findings
The 2026 FINRA Annual Regulatory Oversight Report — published December 9, 2025 — dedicated a specific section within its Market Integrity topic to extended hours trading for the first time, reflecting FINRA's heightened regulatory attention to the expanding extended hours trading activity of retail investors.
The report identified two specific examination findings — both involving supervisory deficiencies rather than disclosure failures — as the primary compliance concerns in current extended hours trading examinations.
The first finding is inadequate supervision — specifically failing to maintain reasonably designed supervisory systems and controls with respect to the identification and reporting of potentially manipulative activity conducted in after-hours trading. The after-hours trading environment — with its lower liquidity and reduced surveillance infrastructure compared to regular session exchange trading — presents specific opportunities for manipulative activity including wash trading and marking the close or open using after-hours transactions. FINRA's examination programme is actively reviewing whether member firms have surveillance systems capable of detecting these patterns in their extended hours order flows.
The second finding is reporting failures — specifically failing to report to FINRA's Trade Reporting Facilities or CAT required information arising from activity conducted during extended hours trading. Extended hours transactions are subject to the same trade reporting and CAT reporting requirements as regular session transactions — members who treat extended hours activity as outside their normal reporting workflows create systematic reporting failures that undermine the market transparency purposes of those reporting obligations.
The report's effective practices section identified a new and notable supervisory expectation — member firms must establish reasonably designed supervisory processes that specifically account for the mechanics and unique characteristics of overnight trading — including venue-specific overnight price bands — and that contemplate supervisory reviews for scenarios that appear to reflect trades outside those bands or trades that appear designed to set the bands in a potentially manipulative manner. This is the first time FINRA has specifically identified overnight price band manipulation as a supervisory concern — reflecting the growth of overnight trading availability at retail platforms and the corresponding need for supervisory systems specifically designed for that trading window.
Connection to Best Execution and Supervision
Rule 2265's disclosure requirements operate alongside the best execution obligations of FINRA Rule 5310 and the supervision requirements of FINRA Rule 3110 — creating a comprehensive regulatory framework for extended hours trading that covers disclosure, order handling, and supervisory oversight simultaneously.
The best execution obligation of FINRA Rule 5310 applies fully to extended hours trading — member firms must use reasonable diligence to obtain the best market for customer extended hours orders and must route orders in a manner reasonably designed to achieve the most favourable execution available under the prevailing conditions. The 2026 Annual Regulatory Oversight Report identified best execution reviews specific to extended hours order handling as an effective practice — recognising that the fragmented market structure of extended hours trading requires specific analysis of execution quality rather than assuming that regular session routing practices provide adequate extended hours execution.
Examination Relevance and Key Takeaways
FINRA Rule 2265 is tested on the Series 7 examination in the context of extended hours trading, investor disclosure requirements, and the six specific risks of after-hours and pre-market trading.
The key points to retain are these.
FINRA Rule 2265 — Extended Hours Trading Risk Disclosure — prohibits member firms from permitting customers to engage in extended hours trading unless the member has first furnished the customer individually in paper or electronic form with a risk disclosure statement. Extended hours trading means trading outside regular trading hours — generally nine-thirty AM to four PM Eastern Time. Member firms that permit online extended hours trading or online account opening for extended hours trading must also post the risk disclosure on their website in a clear and conspicuous manner.
The rule provides a Model Extended Hours Trading Risk Disclosure Statement addressing six specific risks that must be covered at minimum — lower liquidity meaning orders may only be partially or not at all executed, higher volatility meaning prices may move more dramatically, changing prices meaning extended hours prices may not reflect regular session close or next-day open prices, unlinked markets meaning different extended hours systems may display different prices simultaneously, news announcements meaning corporate disclosures released during extended hours can cause exaggerated price movements, and wider spreads meaning the bid-ask spread is typically larger during extended hours than during regular trading.
Alternative disclosure statements are permitted if substantially similar to the model and addressing all six risks. Member firms must also consider whether to develop product-specific additional disclosures for instruments such as ETFs, options, and products subject to corporate actions during extended hours. The 2026 FINRA Annual Regulatory Oversight Report identified inadequate supervision of potentially manipulative after-hours activity and trade reporting failures as current examination findings — and specifically identified a new supervisory expectation for overnight trading requiring supervisory processes accounting for venue-specific overnight price bands and reviewing for trades outside those bands or trades appearing designed to set them manipulatively.
