Longer trading hours on London Stock Exchange not beneficial to liquidity, say most consultation respondents

Maria Nikolova

This view was particularly strong among investment managers, banks and agency brokers.

London Stock Exchange (LSE) today published a summary of responses to recent consultation on market structure, including proposals on adjustments to trading hours.

LSE explains that the majority of participants did not view longer trading hours as a benefit to liquidity. This view was particularly defended by investment managers, banks and agency brokers. There was no clear consensus among the proprietary firms, market makers and retail investors/brokers who responded.

Although most respondents believed shorter hours would improve the velocity of trading and liquidity available on the order book, very few believed that this would result in an increase in trading volumes.

A significant majority of respondents were sympathetic to the arguments that a reduction of market hours could lead to improvements in diversity and wellbeing. However, the vast majority of those who supported this thinking also expressed the view that for this benefit to be realised most effectively, there would ideally need to be harmonisation across European exchanges and other trading venues. Without this harmonisation, the goals of improved diversity and wellbeing would be harder to achieve, given the pan-European nature of many trading roles in the financial industry.

Some respondents also noted the potential for dislocation and additional market complexity if a trading venue were to reduce its trading hours independently, rather than as part of a harmonised pan-European change.

A small number of respondents suggested a “lunch break” as an alternative to a shorter trading day.

Some participants noted London’s position as a global financial centre and questioned whether shorter market hours would be detrimental to this. Others highlighted that shorter trading hours in the US and Asia have not necessarily translated into working hours which are any shorter than those in Europe.

Most respondents did not consider the current overlap with Asian market hours to be as important as that with US market hours, at least for the present.

A few respondents noted that there are current EU proposals to abolish changing clocks during summertime, which could complicate the idea of harmonising market hours across Europe.

In terms of derivative markets, few believed there would be any real impact of reducing trading hours. “Out of hours” trading is a small percentage of overall turnover according to these participants. Respondents expect most derivatives trading would adapt to any change to trading hours. A few respondents did highlight the need to particularly consider single stock options and futures, and the hours that these trades might need to be amended if trading hours are changed.

Regarding the impact on retail investors, there was a wide range of views, including some who advocated longer (rather than shorter) hours. There was some consensus on a later opening time, to allow for better digestion of results and overnight news, but mixed feelings about an earlier closing time.

There was a range of opinion as to the wider implications of changing market hours. Views were mixed on earnings announcements. Some respondents argued that these should be issued later, others said issuance being an additional hour before the open would mean a better considered opening price. On Exchange Delivery Settlement Price (EDSP) timings, some viewed this as an opportunity to harmonise EDSP auction timings, while others were strongly against any change on the grounds of volatility and focus for traders on each EDSP auction.

In terms of how hours might be amended, the majority view indicated a preference for a 09:00-16:00 trading day, but with reasonable clusters advocating for both 09:00-16:30 and 09:30-16:30. A minority advocated leaving hours unchanged.

London Stock Exchange notes that other European exchanges and other trading venues are currently consulting and considering their position on market hours. LSE awaits their public findings as these will be an important factor in considering any potential changes to its trading hours, given the indicated preference for harmonisation.

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