The Federation of European Securities Exchanges (FESE) has slammed the industry’s bid to shorten equity market hours as being detrimental to end investors.
In a statement, FESE described the attempt to shorten the European trading day as a potential move in the wrong direction that would have no impact on the wellbeing of traders and participants, a key part of the case to reduce equity market hours.
FESE argued that the COVID-19 pandemic has also highlighted the need for regulated markets in times of high volatility and traded volumes, and that the current length of the trading day is already designed to serve investors.
Elsewhere, shortening market hours could harm price formation, the association added, and draw flow away from regulated lit markets towards other trading venues such as systematic internalisers (SIs) and over the counter (OTC). SIs and OTC markets already operate outside of market hours and are staffed by trading desks to accommodate investors, meaning a shorter trading day would have no impact on employee wellbeing, FESE claimed.
US-based exchange group Nasdaq has backed FESE’s rejection, referring to the move to shorten market hours in Europe as ‘unwise’, especially due to the recent surge in market volatility driven by the coronavirus pandemic.
“Nasdaq supports FESE’s notion that the shortening of European trading hours would be unwise, particularly in a time of high volatility and market uncertainty where all investors, including private investors, need access to financial markets,” Nasdaq said in a statement. “We will continue to be part of all discussions to make sure that our members’ interests are best taken into account in what we believe needs to be a pan-European decision, for all types of markets including MTFs and SIs.”
The rejection from FESE follows a consultation at Euronext, whereby the Association for Financial Markets in Europe and the Investment Association called for market hours to be reduced by 90 minutes. The trade groups argued that the reduction would concentrate liquidity more efficiently, have a positive impact in creating more diverse trading floors, and benefit the wellbeing of market participants.
Last month, responses to the London Stock Exchange’s consultation on the same issue revealed widespread support for the move from traders and market participants, with a majority indicating a preference for reducing the trading day in Europe from 8am-4.30pm to 9am-4pm. However, a majority also agreed that all exchanges in the region would have to implement the changes for the benefits to be fully realised.
“Given the considerations outlined above, FESE believes current trading hours best serve the interest of investors and that a shortening of the European trading day would be a move in the wrong direction and detrimental to European markets,” FESE concluded. “This is a complex issue that warrants serious reflection in terms of the competitiveness of Europe, market quality, depth of liquidity, the participation of investors in the market whilst also recognising the need to ensure the well-being of employees.”