A spokeswoman for LSE said the exchange will consult on the proposals with its members and customers. A spokeswoman for CBOE Europe said a shorter trading day was “a very interesting concept worthy of discussion.”
The letter suggests opening hours of 9 am to 4 pm London time, compared to the current trading day that runs from 8 am to 4:30 pm.
Boosting liquidity, too
Adopting shorter trading hours could help to boost liquidity on European exchanges, but could also drive some business away into so-called dark pools, trading venues which are less transparent and which regulators have been trying to curb.
The new hours would mean a 30 minute reduction in an overlap with the United States’ stock exchanges, which analysts and industry experts believe could be detrimental for the LSE, Europe’s leading stock exchange as well as for its continental European rivals.
“London’s great strength is overlapping both the Asian and US trading hours,” said Chris Bailey, European strategist at Raymond James. “I think the current set up is about right.”
But the AFME said the shorter hours would improve liquidity which has been hit by the growth of passive and index-tracking funds.
The popularity of passive investing is draining liquidity in Europe’s $US11.1 trillion ($16.1 trillion) equities markets as products like exchange-traded funds and hedge funds use end-of-day prices set during the exchanges’ closing auctions for their daily pricing.
This means the final five minutes of trading has become the busiest time of day for stock market traders with a third of a day’s average trade volume going through in the final hour.
“Shortening the hours would concentrate liquidity leading to more consistent trading costs and provide greater time for traders and the market to digest corporate announcements,” AFME and the UK-based Investment Association said.
AFME’s argument on liquidity is largely supported by the industry, but there are also concerns that shorter hours could drive more business into off-market venues known as dark pools.
I don’t think anyone working in this industry could see this move as negative because we all work extra-long hours. Our day is 11 hours long not eight as they say.
Sharemarket trader at a European bank
This would hinder the European markets regulator’s efforts to curb off-market trading, where trades do not contribute to price formation and there is less transparency.
These off-market trading venues have become popular because they can allow large investors to avoid prices moving against them when they execute big stock trades.
In July, trading in such off-market venues accounted for 9.6 per cent of all on-exchange activity, according to data compiled by capital markets advisory firm Tabb Group. This was its highest level since the European Union rules aimed at increasing transparency in financial markets came into effect in January 2018.
Ben Springett, Head of European Electronic and Program Trading at Jefferies, said off-market venues could increase the competitive pressure by opening earlier and closing later than the main markets and that this would be counter-productive.
“The crucial aspect would be to retain relative harmony across the various European primary exchanges and alternative venues,” Springett said.
Above all those considerations, traders said they would welcome the shorter hours.
“We all get in earlier than the open. But to have an extra hour to prepare would mean a way less frenetic rush premarket to gather, digest and inform on the news and issues that really matter,” said Mark Taylor, sales trader at Mirabaud, a broker.
“I don’t think anyone working in this industry could see this move (shorter trading hours) as negative because we all work extra-long hours,” said a female sales trader at a European bank, who declined to be named. “Our day is 11 hours long not eight as they say.”
Bloomberg, with Reuters