London Traders Vote to Reduce World’s Longest Trading Hours

(Bloomberg) -- Most U.K. stock market participants want a reduction in the world's longest trading hours, which they say can improve liquidity and industry diversity, according to the results of a London Stock Exchange survey.

“A significant majority of respondents were sympathetic to the arguments that a reduction of market hours could lead to improvements in diversity and wellbeing,” the LSE said as it released the outcome of its consultation, without disclosing the percentage of those favoring shorter hours.

Most of the more than 140 respondents said that any change would need a unified approach across European exchanges and other trading venues, according to the LSE. In light of this, the bourse said it'll wait for the results of other European exchanges' surveys on market hours, which at 8 1/2-hours exceed the U.S. by two hours.

The results of the consultation lend weight to a proposal by two professional bodies to shorten European market hours for reasons including the concentration of liquidity in the first and last hours of trading, the short time window between corporate news releases and the market opening, and the need to improve the work-life balance and diversity at financial firms. The Association for Financial Markets in Europe (AFME) and the Investment Association of U.K. asset managers asked bourses in November to consider cutting 90 minutes from their trading day.

The LSE survey was conducted in December-January 2020, with respondents ranging from individual investors through to global investment banks. The exchange said it will also monitor whether the period of remote working due to the coronavirus pandemic has altered any views on shorter trading hours. Lobby groups for the industry have previously said they would support a 12-month pilot across all major European exchanges and trading venues.

The majority of those surveyed favored a 9 a.m. to 4 p.m. trading day, which would mean a one-hour delay to the open and a 30-minutes earlier closing time. Some advocated for both 9 a.m. to 4:30 p.m. and 9:30 a.m. to 4:30 p.m. working days. A minority advocated leaving hours unchanged, LSE said.

“Shortening trading hours has the potential to improve wellbeing and diversity on our trading floors and ultimately to deliver better outcomes for our clients,” said Galina Dimitrova, director for investment and capital markets at the Investment Association. “The fact that the majority of respondents to the LSE's consultation on market trading hours agree, adds further weight to the argument that it is time to reduce trading hours.”

Even if the session would be reduced to seven hours, as favored by most respondents, the European trading day would still be longer than in the U.S. and Japan and would overlap with American markets. Most respondents in the survey didn't consider the current overlap with Asian market hours to be as important as that with U.S. market hours.

While the majority said shorter hours would improve trading velocity and liquidity on the order book, “very few” believe that this would result in an increase in trading volumes, according to LSE.

The capitalization of the Stoxx Europe 600 Index is about half that of the S&P 500 and the average turnover in the European benchmark in the last 12 months is about 40% lower than on Wall Street.

An informal Bloomberg News survey in February showed that across Europe, 74% of finance professionals, including traders, analysts and fund managers, favor reducing the length of the stock market day.

Here are some other findings of the LSE consultation:

A “small number” of respondents proposed a lunch break as an alternative to a shorter trading day
Some participants questioned whether shorter hours would be detrimental to London's position as a global financial center
Few believed that reducing hours would have any real impact on derivatives markets
Respondents had mixed views on the impact on retail investors, with some advocating longer hours
Views on the timing of earnings announcements were also mixed, with some advocating for a later release time and others saying that an extra hour before the market open would give participants more time to consider the opening price