The time is ripe for a change in trading hours agreed expert panellists at the TradeTech Europe conference on Wednesday, but whether this should be in the direction of longer or shorter days was up for debate.
When it comes to the argument in favour of expanding trading hours, the answer was summed up in very succinctly in just two words by one panellist: retail participation.
It’s no secret that the notion is essentially a retail-driven initiative, coming off the back of the rise of crypto in recent years. However, when asked whether there was a direct correlation between more hours and more participation in other areas, i.e. in institutional investing, the answer was a resounding no.
Speaking to the argument for shortening the trading day, one expert said: “It’s about trying to create a market infrastructure that works best for all participants in the market. At the moment [Europe] has the longest primary market hours in the world by a long way. It’s an eight and a half hour primary window versus the US’ six and a half hours.
“This really drawn-out trading day is just not working in terms of distribution of liquidity in that market. We were all aware of the growth and the close, but it’s not just the close, it’s the move towards more and more volume trading after the US opens.”
In European markets currently, around 50% or more of volume trades after the US opens, explained one panellist. This of course leads to a clear concentration of primary liquidity in a short space of time – leaving the rest of the day susceptible to patchy liquidity.
The experts agreed that there are real market quality concerns, with extended hours potentially leading to wider spreads, less liquidity at touch, and more off-exchange/bilateral trading.
Panellists also discussed the notion of the agenda setting power being firmly in the hands of the trading venues themselves, however all agreed that the overarching roadblock remains operational challenges associated with implementing a reduction in trading hours.
Hurdles include staffing, technological innovation needs, and in particular, and cost concerns. Without infrastructure support, the change just will not work, asserted one panellist.
Speaking about the layers of complexity, and whether the risks are worth the costs one speaker said: “Technology is obviously built for a certain way […] there is a lot that goes on under the hood which sometimes people take for granted. There’s definitely big costs and you have to think about who’s benefitting”.
Equities markets left behind?
Discussing the idea of a future primary market which opens at 9 am, the question of European equity markets potentially being left behind as the US continues on its path to expanded trading days was raised.
“It’s something that has to be taken into account […] if you think about it really we need to be globally competitive now. It doesn’t mean we have to follow what the US are doing, but if the US are looking at going 24/7, we have to consider that very, very strongly.
“If you were to move to a doomsday scenario it could be that every company could just forget about listing in Europe and just list on NYSE for example because they can trade all day and night there. We have to be considerate of these things and the overlap is important.”
“There’s great momentum in European markets at the moment. I think we’ve got a long way to go to optimising things and there’s things that we can be doing better but we’ve got nothing to lose. We should at least consider thinking about reducing primary hours and at the same time look at what we can do that’s a little bit smarter around retail liquidity,” concluded one panellist.