As more firms and exchanges begin to jump on the extended trading hours bandwagon, the transition to round-the-clock trading is increasingly being perceived as inevitable by market participants. As a result, Europe is being forced to react.
The inevitability of the spectacle
Although many concerns remain – expert panellists at a recent Bloomberg conference emphasised that around 80% of senior buy-side traders want shorter rather than longer hours – technological developments and global progression is quickly making this market shift a reality, rather than concept.
As Simon Mason, head of trading venues at LSEG, explained, markets have reached a point where “there could be some quite significant evolution in market structure as new technologies are leveraged, which will bring new opportunities for us to trade longer, concentrate liquidity in certain market centres and trade around the clock.”
While positive sentiment towards 24/5 trading is not unanimous across the industry, many market participants are beginning to come to terms with the inevitability of the shift.
Richard Worrell, director, EMEA electronic sales at Barclays affirmed that once US exchanges began to make the move, “there was going to have to be a reaction from Europe.”
Indeed, while traders may be pushing back against longer hours, the panel discussions also indicated that the exchanges of tomorrow may have little reason to inherit the trading constraints of today.
As Worrell put it: “One of the things I always think about through this is if you were to build an exchange from scratch today, what would you do? And you would probably start from 24/5 or 24/7 and work backwards.”
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Building on this, conversations also turned to where the true demand for this uptick in 24/5 and extended trading hours is coming from, surfacing the question of whether this is an institutional versus retail debate.
While the demand landscape, from some angles, appears quite nuanced – with retail demand from Asia in particular holding strong – and some institutional clients, such as ETF issuers expressing interest, a large proportion of panel sentiment indicated that this shift is more reactive than demand-driven.
As Vincent Boquillon, head of cash equities at Euronext, stated, this reactive nature is not necessarily ‘bad’, as it introduces global competition.
However, he allowed that there is definitely an element of understanding when it comes to looking at the other side of the coin.
“I do sympathise a lot for European exchanges. If the US exchanges move that way, you suddenly have to react here. I’ve always felt it’s a bit of a ‘darned if you do, darned if you don’t’. The ‘darned if you do’ part, is that by dragging the exchanges into this world, you question what is going to happen to liquidity, if it moves to equities, and does it become really dispersed over a longer day? Is that going to be good for any of us?
“I’m not so sure. But what happens if somebody prices your market when you’re not there? That becomes really challenging.”
Guardrails remain essential
Alongside increasing momentum for extended trading hours, panellists were also quick to emphasise the importance of establishing proper market structure and regulatory guardrails, to ensure fairness and investor protection in these new trading models.
This is particularly pertinent for the buy-side, many of whom insist on transparency, risk management, and proper regulatory oversight before engaging in overnight sessions.
Speaking on this, Nii Saka Addo, senior index equity portfolio manager at Vanguard, asserted: “At the start, there have to be clear guardrails, transparency, risk management around this extended session. The way I think about it is you have built a five-star restaurant and you want customers to come in there.
“Are you going to pay customers to come in or are you going to advertise it? Are you going to publish the health report and say it’s of this calibre level of health safety?”
Read more – Institutional tide of opinion on extended trading hours not turning
Ultimately, the debate around extended trading hours is increasingly becoming less about whether markets will move towards 24/5, and more about how that transition can be managed without compromising liquidity, transparency or investor protection.
With Europe beginning to react to US transitions, the key challenge will likely lie in ensuring that longer hours do not simply create longer trading markets, but stronger ones.