Is a shorter trading day right for UK shares?
Fund managers, banks and City lobby organisations are understood to be working on ground breaking proposals that could cut stock market trading hours in the UK and across Europe, opening an hour later at 9am and closing an hour earlier at 3.30pm.
The talks, which are reportedly at a very early stage, are aimed at helping investment industry workers improve their work/life balance and encourage the recruitment and retention of female staff.
‘Compressed market opening times is an issue we are discussing with our members,’ says Simon Lewis, the boss of bank lobby group the Association for Financial Markets in Europe (AFME), in a Telegraph article.
‘Work is at an early stage but we are supportive, in principle, of proposals that would encourage more flexible working practices in the European equities trading market and that could help to promote increased diversity in the sector.’ April Day, head of equities at AFME, says in Financial News: ‘There are lots of industries trying to make the working day more flexible. Why shouldn’t we be talking about it here in financial services and particularly in trading?’
The UK’s Investment Association, which represents the country’s £7.7trn asset management industry, is also understood to be planning to consult its members on shortening European stock market trading hours.
WRONG TOOLS FOR THE JOB
Encouraging greater gender diversity and improving the working life of staff are both noble ambitions, but whether shortening the trading day is the way to achieve them is open to question.
Alasdair Haynes, chief executive of pan-European exchange platform Aquis Exchange (AQX:AIM), doesn’t believe shortening the trading would make much difference in attracting woman into the industry.
Instead, he says any changes made to share trading processes should be aimed at improving liquidity in markets.
Haynes finds it odd that the share dealing industry is looking to reduce access to investment markets when almost every other industry is trying to make it easier and more convenient for their customers.
Historically, the reason why markets are only open for a fixed period was to promote liquidity and efficiency of the markets. Since markets are driven by knowledge and prices that are part of the flow of information, it made sense for there to be a focused period that drew most investors together so that knowledge could be disseminated effectively and efficiently.
The UK stock market is currently open for share dealing from 8am to 4:30pm, Monday to Friday on the London Stock Exchange, with European markets matching those operating hours, albeit an hour ahead because of the time zone difference.
CENTRE OF SHARE TRADING UNIVERSE
One of London’s advantages historically has been its central spot in Greenwich Mean Time. Haynes believes evidence that cutting two hours off the trading day would be a regressive step is in the share trading volumes, which typically peak at the start of the day, and towards the end, tallying with the closing of Far East markets, and the opening of Wall Street.
But in the 21st Century digital age where information flows continuously 24/7, it is arguable that fixed trading hours are fit for purpose.
Prices move continuously as news emerges where market makers will adjust buying and selling prices before the market opens to reflect new events.
Rather than truncate the trading day, as is being talked about, Haynes supports the idea of a continuous free flow of information and prices where investors ‘do not have to wait until 8am to trade’.
How that might affect liquidity remains open to question, especially for smaller company shares which tend to be far less easily to trade as it is.
Perhaps in the long-run trading 24/7 or 24/5 (Mon to Fri) will become the norm, but for the time being, one of the potential benefits for investors of UK share dealing starting an hour later could be to give them more time to chew over morning announcements.
Most news is pre-arranged to be released at 7am each morning. This leaves just 60 minutes for analysts, fund managers and investors to digest often complex financial results and other important updates before the market opens and share prices start to move, cranking up the pressure.
The US gets round this issue by releasing most of its company announcements after the markets close for the evening, giving any interested parties the evening and early next morning to read through releases and process the news, although pre-market and aftermarket trading is also possible in the US, complicating matters.
Interestingly, London-listed Metro Bank (MTRO) has started to issue its updates after the UK market close.