Market participants have welcomed moves by trading venues Hong Kong Exchanges and Clearing (HKEx) and the Tokyo Stock Exchange (TSE) to lengthen trading hours, although it remains to be seen if these will result in higher volumes.
“For the vast majority of international brokers, these changes will be welcomed and should prove to be a non-issue, given the time zone and regional coverage they have to support right now,” said Lee Porter, managing director, Asia-Pacific, Liquidnet Asia, a buy-side crossing network. “Currently, Hong Kong has one of the shortest trading hours in the region and this move brings it in line with other regional exchanges. As to whether this leads to increased volumes or not, we will have to wait and see.”
Hong Kong will cut its traditional two-hour lunch break, the longest among developed markets, first to 90 minutes then to just one hour. From 7 March 2011, the stock market will open at 09.30, instead of the current 10.00, then close for lunch at 12.00, instead of the current 12.30. The market will open again in the afternoon at 13.30 then close at 16.00 as per the current closing arrangement. Twelve months later, on 5 March 2012, the lunch break will be shortened by a further 30 minutes, with the start of trading being brought forward to 13.00.
HKEx chairman Ronald Arculli said implementation of the reduction in the lunch period would take place in two phases to give market time to adapt.
The TSE has also said it will shorten its 90-minute lunch break to one hour – 11.30-12.30 – in H1 2011. TSE president Atsushi Saito predicted the change would yield an increase in trading of around 6%.
Conita Hung, head of equities at Delta Asia Financial Group, a banking and financial services group in Hong Kong and Macau, argued that the main significance of the HKEx move is that it would bring Hong Kong closer to the trading hours of international and mainland exchanges. “If the mainland exchanges are already trading while we are having lunch, our market would tend to have a bigger reaction post-lunch to any major news that breaks during lunch,” she said. “Bringing trading hours closer to international markets would also help to facilitate trading across markets. The current two-hour lunch break is useful if one is able to make use of the time to meet clients. Otherwise, it is a bit too long.”
But even with shorter breaks, Japan and Hong Kong are among a small number of major exchanges that close for lunch. The Australian Securities Exchange operates without a break, while the Singapore Exchange has proposed full-day trading by removing its 12.30-14.00 lunch break. China's Shenzhen and Shanghai exchanges currently operate a 90-minute lunch break.
Nick McDonald, head of Asian cash equities at agency broker-dealer Louis Capital Markets (HK), says it makes sense to bring the Hong Kong market in line with trading hours in the mainland and other bourses in the region, but noted that brokers would need to tweak volume weighted average price (VWAP) and time weighted average price (TWAP) algos to account for the change in volume distribution. “You could see erratic behaviour of algos until the volume settles down,” he said, adding that turnover could increase in the first half an hour of trading. “At present, Shanghai is your first market to open that allows you to react to any news, good or bad. Maybe HKEx will take some of that volume away.”
David Webb, editor of online Hong Kong finance title Webb-site.com and a former non-executive director of HKEx, said the pace of market reforms in Hong Kong continued to be slowed by the influence of retail brokerages. “Hopefully, the exchange will follow through on the second step in March 2012 rather than do a U-turn as it did in 2007 over trading spreads,” he said. In February 2007, HKEx abandoned plans to reduce the minimum bid-offer spread for stocks below HK$5.
However some buy-side market participants have expressed scepticism about the scale of the impact of changes to opening times, arguing that the amount of volume on the exchange is far more relevant to the buy-side trader than the hours that the exchange is open.
“Volume might increase a little bit in some of the more liquid names,” commented one observer, “But I don't think it is going to dramatically transform liquidity in the more difficult names. It's only a move to make the market more like the other markets around the region. In terms of the actual function of trading, I don't think it's going to dramatically change volumes, or how people trade, or what people trade.”