- Shortening the trading hours would make it necessary to assess the needs of end investors
- Would affect the interactions between different markets during the length of the trading day
- Poses a potential threat to liquidity and would have a cross jurisdictional impact across markets and linked products
- Could compromise the competitiveness of the markets
The European stock exchanges, represented in the Federation of European Stock Exchanges (FESE), among them BME, have published a press release about trading hours. In November 2019, the Association of Financial Markets in Europe (AFME), and the Investment Association (IA) called for European equity trading venues to review market opening hours across Europe.
Prior to even considering any changes to trading hours for equities, which could be detrimental to European markets, a number of complex issues need to be thoroughly examined to fully understand the effects any changes would have which includes:
• the needs of end investors
• the interactions between different markets during the length of the trading day
• the potential threat to liquidity
• the cross jurisdictional impact across markets and linked products and
• the competitiveness of the markets
These points alone suggest that a shortening of the European trading day could be a move in the wrong direction and overall detrimental to European markets and end investors.
The Covid-19 crisis has shown that regulated markets are central in times of uncertainty (high volatility and high traded volumes). Transparent, fair and resilient markets offer management of risks and liquidity across global geographies with high integrity and are of the utmost importance. From a liquidity perspective, it is important to underline that there are currently no liquidity issues on European regulated markets, especially at the beginning and at the end of the trading day, that would motivate a change of trading hours. The amount of liquidity present on European markets in the early trading hours and during the latter part of the afternoon demonstrates that the length of the trading day currently reflects investors’ needs.
Shortening the trading hours of transparent lit exchange markets would further facilitate an unlevel playing field since Systematic Internalisers (SIs) or OTC markets, which already transact a large part of their business outside of exchanges’ main trading hours, would not be subject to such a change.
An important issue raised is that of employee well-being. Given that SIs and OTC markets already operate outside current exchange opening hours and that their trading desks are therefore staffed to accommodate these markets and other asset classes, a shortening of the European trading day would have no impact on employee well-being. Other measures at an enterprise level would be necessary to facilitate improved work-life balance (e.g. working in shifts, flexible working hours).
The negative impact on the interplay of markets and the economy in Europe has been left aside in this debate. Consideration must be given to the enormous size of the markets and economies affected, not forgetting the symbiotic relationship between trading hours and the real economy. Given the challenge of recapitalising our economies due to the Covid-19 crisis, efficient, competitive, and well-functioning European markets are of paramount importance to ensure our economies recover from the current crisis. As such, it is crucial that they remain available for market participants according to their needs.
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