At present, European stock markets boast the longest trading days in the world. The New York Stock Exchange, home to the world’s largest pool of equities, is open for six-and-a-half hours, two short of the London Stock Exchange’s (LSE) working day. Japan’s main bourse – which is around 50 per cent larger than any single market in Europe – opens at 9am, pauses for a one-hour lunch break at 11.30am, and shuts at 3pm.
Instinctively, one might think that longer opening hours are a boon to the capital market business. According to the IA and AFME, that assumption is wrong. “These longer trading hours compared to the other global markets are no longer serving material benefits to savers, investors or firms,” the paper states.
This contention rests on two main arguments. The first concerns liquidity, which the industry bodies say would be improved by a more concentrated trading window. Market data would appear to support this. On the LSE on any given day, around a third of trading volume takes place in the final hour of opening hours, when index-tracking funds are forced to balance their holdings. Conversely, there is comparatively little trading volume in the first hour of the day, which in turn affects bid-offer spreads. Indeed, the report estimates that trades in the first half hour of the day cost more than twice that of the last half hour.
Nor are longer hours justified by the time taken for a trade to be executed, which continues to fall. A 90-minute outage at the LSE on 16 August did not result in a big drop-off in the daily volume. The report also cites data that suggests that in the months after the LSE extended trading hours on its International Order Book (IOB), average daily trading volume fell and bid-offer spreads widened relative to the FTSE 100.
The second argument is more human. The report points to anecdotal evidence that long hours contribute to significant mental health issues among traders, and that by shortening the working day, this would open the profession up to “a more diverse range of individuals”. Whether this would in turn change “the generally narrow gender and cultural backgrounds seen in trading… [and] the conscious and unconscious bias of individuals on the trading floor” is perhaps a moot point. We wonder whether the increasing dominance of algorithmic trading – which no one is arguing against, but which carries its own gender biases in the job market – might have greater effects.
Many retail investors will recognise the strains of an eight-and-a-half-hour trading day. One professional trader welcomed the proposals, citing the difficulty of leaving his screens during trading hours, and the fear of missing out on sudden price movements. “I doubt it would make markets more efficient, but I believe it would reduce some strain and stress on traders,” he said.
However, in a sign that some investors may see the proposals in a different light, the trader also suggested that any improvements in liquidity might not be to his advantage. “A trader needs volatility – the more efficient the market the less volatility there is,” he commented. “Rather than have a later open I would prefer an earlier close… as I know a lot of retail traders aren't ready at 8am, and I wouldn't want it to be easier for them.”
