Aug 19 (Reuters) - Trading platform Blue Ocean

Technologies LLC on Monday completed a platform upgrade that

will boost capacity several hundredfold, two weeks after its

overnight trading system crashed in the midst of a global market

sell-off, the company said.

The fix underscores the need for upgrades to cope with

massive growth in retail overnight trading, especially as

investors try to cope with or exploit market volatility

triggered by geopolitical events, the uncertainty surrounding

U.S. interest rates and election turbulence.

Privately-held Blue Ocean operates a U.S. alternative

trading system, a platform that matches buyers and sellers,

which underpins overnight trading for Robinhood Markets Inc ( HOOD )

and 19 other U.S.-registered broker-dealers.

But its system was unable to cope with a surge of trading

activity earlier this month, when disappointing U.S. jobs data

and an unwinding of the yen-based carry trade triggered a global

sell-off and a surge in volatility. That left Robinhood

customers unable to place trades. The outage affected the last

few hours of the Sunday/Monday overnight session.

"We had capacity issues," Brian Hyndman, Blue Ocean's chief

executive, told Reuters in an interview last week. "We knew that

the demand was coming late last year, based on the number of

subscribers and marketmakers coming onto the platform."

On Monday, it finished migrating to a technology system

powered by Members Exchange (MEMX), a Wall Street-backed

exchange launched in 2020, which will allow Blue Ocean to expand

capacity dramatically.

That is measured in the number of trade-related messages --

from price quotes to confirmations -- that it will be able to

handle. Hyndman said the upgraded platform will be able to

handle 35 billion messages per 8-hour overnight trading session,

up from 50 million.

Blue Ocean inked its technology deal with MEMX in January,

but the transition did not happen swiftly enough to prevent its

previous system from buckling during the Aug. 4-5 sell-off.

Hyndman said they knew the system's limitations and asked

clients to scale back activity "because we knew it was going to

be a big night. Still, the demand was much too high" he said.

Blue Ocean had to close its system shortly after 3 a.m. ET

on Aug. 5 and later limited the number of securities its clients

could trade.

Vladimir Tenev, CEO of Robinhood, described the events as

"very frustrating" in an earnings call, but added he was

confident that the technological upgrade would allow more

overnight trading volumes.

FAST-GROWING OVERNIGHT TRADING

Overnight trading allows traders to place buy and sell

orders in the 8 p.m. to 4 a.m. ET window between the end of U.S.

market close and the opening of the next morning's pre-market

on-exchange trading. That means overseas investors can trade

during normal hours and U.S. investors can get an edge if big

news breaks after hours.

While it is still a mostly retail-driven phenomenon and a

fraction of total trading volume, overnight trading is growing

fast.

Robinhood declined to disclose exact overnight trading

volumes on its platform, but Tenev told analysts on an earnings

conference call earlier this month it is approaching $30 billion

daily, up from $10 billion in May 2023.

Interactive Brokers ( IBKR ), which launched overnight

trading in November 2022 and now offers overnight access to

10,000 different products, said in a press release that it saw a

446% surge in volumes in the first seven months of 2024 and that

overnight trades now account for 2.5% of all U.S. trading

volumes.

Steve Cohen-backed Bermuda-based trading platform 24Exchange

is also seeking regulatory approval to offer 24/7 trading in

U.S. stocks.