Shorten Trading Hours on the London Stock Exchange
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Dear London Stock Exchange,
We have read the document on market structure and trading hours and welcome this consultation. It is a positive step forward to making the London Stock Exchange a better market for everyone involved.
We note that the London Stock Exchange has requested combined responses and so on behalf of myself and the signatories we would like to submit our collective response.
It is our opinion that by shortening trading hours and removing several SETSqx auctions we can improve liquidity and the market.
Topic 1: Market Trading Hours on London Stock Exchange
1. Figure 2 in the ‘Appendix’ section of this document provides details of the opening hours based on continuous trading hours across several global exchanges: a) Equity markets in Europe are open for 8.5 hours, whereas most other global financial centres are open between 5-6.5 hours. Do you consider the longer hours in Europe a benefit to liquidity? b) Alternatively, would the concentration of trading hours increase turnover and liquidity? (please cite, where possible, any studies or academic research).
In response to 1.a)
The longer hours in Europe are not a benefit to liquidity.
In response to 1.b)
The concentration of market hours will increase turnover and liquidity on many stocks. This is because liquidity will be focused into a shorter time frame, therefore spreads will be narrower and further increase liquidity and turnover.
5. Would shortened trading hours impact the participation of retail investors in the market?
In response to 5)
Shortened trading hours would impact the participation of retail investors in the market positively.
Retail investors make up the vast majority of dealing in the secondary market and would benefit from a delayed start, which would in turn benefit companies.
As the Regularly News Service announcements begin at 07:00 this means private investors must be ready to begin reading and researching at this time.
Currently, private investors and indeed all market participants only have 50 minutes before the opening auction begins at 07:50, with the opening bell at 08:00.
A private investor who has several shareholdings reporting in that day may be stretched for time to accurately make what they feel are optimal decisions. This time pressure is compounded with any commute or spousal duties. By increasing the amount of time before the opening bell, this gives everyone a better opportunity to properly digest market news.
This in turn means a more efficient market, which increases the overall quality of the market. This would be to everyone’s benefit and increases the attraction of a London listing.
If the Regulatory News Service was to be delayed alongside the market hours – this would still be an improvement on the current situation as a later start to the trading day is beneficial for mental health.
Over the last few years, the London Stock Exchange has seen a decline in the number of securities listed on both the Main Market and AIM. This is not necessarily a bad thing; however, it should be in all investors’ interest to see the London Stock Exchange be an attractive place to list a company.
A more liquid market would be more effective and attractive to companies.
7. Finally, considering the proposals outlined above, what would you consider to be the best choice in terms of market hours? Please answer by stating one only of A, B, C, D, or E, supporting the answer with your views.
In response to 7):
We believe that option A (08:30-15:30 London time) is the best option for the reasons given in answer 5.
Shorter trading hours will focus and increase liquidity, narrowing spreads, and therefore improving the quality of the market making it a more attractive place to list.
Shorter trading hours will reduce the stress and strain on both professional and retail traders and investors, as currently 8.5 hours without a single break means lunch is eaten at desks staring at screens as otherwise one can miss out or even see positions move against them.
Reducing trading hours is a long overdue step in improving mental health and stress in market participants’ personal lives.
Topic 2: Liquidity of small cap securities
8. Prior to this consultation paper, were you aware of the auctions available for small cap securities available on SETSqx?
In response to 8):
Many private investors are aware of the auctions available for small cap securities available on SETSqx. However, many private investors are not aware of these and so many auctions have little to no participation with even more having no uncrossing trade.
9. Do you agree that a reduction in the number of auctions on SETSqx could provide more focused liquidity?
In response to 9):
We agree that a reduction in the number of auctions on SETSqx could provide more focused liquidity. This is because a reduction would mean there are fewer opportunities to bid for stock and to put stock up on the ask. This would, in theory, mean increasing bidding and offering in the fewer auctions available and increase the prospects of an uncrossing.
More uncrossing would mean more liquidity and in turn a more efficient market.
10. If you agree with question 9, which of the current SETSqx auctions would you remove? (08:00, 09:00, 11:00, 14:00, 16:30). 08:00 and 09:00 are currently the auctions with the lowest liquidity.
In response to 10):
We would like to see the current 09:00 and 14:00 SETSqx auctions removed. This is because there should be an opportunity for traders and investors to participate in an opening auction and closing auction.
The opening auction of 08:00 along with the auction at 09:00 are currently the auctions with the lowest liquidity – perhaps this is because there are two auctions within quick succession followed by another two hours later. Removing the 09:00 auction will focus liquidity into both the 08:00 and 11:00 auctions.
By removing the 14:00 auction, this again will push liquidity into the 11:00 auction and the 16:30 closing auction, thereby increasing the chances of uncrossing.
Topic 3: Auctions
21. Should London Stock Exchange discontinue the Intraday Auction altogether?
In response to 21)
Yes, the London Stock Exchange should discontinue the Intraday Auction in its current form. The auction was designed to increase liquidity at a low point of volume in the trading day but the uncrossing volumes are still very small.
22. Currently, during all other auctions, London Stock Exchange publishes both Level 1 (top of book) and Level 2 (full order depth) data, whereas only Level 1 data is provided during the Intraday Auction. Which Level of data do you feel is most appropriate for auctions?
a) Level 1 or
b) Level 1 and 2?
Please provide explanation for your choice.
In response to 22)
Option b) Level 1 and 2 data is the most appropriate for auctions. This is because of the low uncrossing volumes in the intraday auction. Level 2 data then this does not give indicative uncrossing volume. Without access to this then retail investors may attempt to participate in the 12:00 auction without being aware of the thin order book. Should they be a part of the uncrossing, they may incur minimum commission fees on small trades, which makes those trades unprofitable.
Thank you for your consideration on this matter.
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