- Issue of shortening the trading hours on LSE has long been under consideration
- There have been voices raised in favour and against of the proposal, with each giving some or other valid reasons
- The major concern has been regarding the trading hours around the world and synchronisation with it
- The way forward is wider consultation among major stock exchanges on the impact
Back in December, last year the London Stock Exchange group had come out with a consultation paper asking various market participants to give their suggestions regarding shortening the trading hours on the exchange. Being one of the oldest stock exchanges in the world, it has one of the longest trading hours of eight and a half hours as compared to other prominent stock exchanges in Europe, the Americas, and Asia. While longer working hours have been thought to garner more business for the London Stock Exchange group than its American and Asian counterparts, the move now seems to have lost the cost to benefit advantage over a period of time. It is no longer believed that quantity of business on the exchange is correlated with the number of working hours, while the cost of mental health of market participants working long hours and their family commitments continue to suffer. Gender diversity as a consideration has also been put forward by leading associations in the industry like, The Investment Association a lobby group of asset managers in the United Kingdom and the Association for Financial Markets, which represents trading firms and banks in Europe, as such industry conditions has kept many women away. The consultation process which has now been closed after running till 31st January 2020 has thrown up some interesting results.
The proponents of the proposal feel that while the working hours put additional burden on the people, it does not bring in more business for the stock exchange as most of the investors invest as per their budgets and not by the hours the exchange remains open. They point out that in such a scenario, the incremental benefit for additional hours spent is sharply diminishing. Moreover, in the current scenario, when many of the people in the industry are preferring to work from home and are working from home quite productively, long office working hours seem like a redundancy.
On the other hand, the critics of the proposal say that it will be a tough affair to bring all the major stock exchanges in Europe on the same page if the proposal has to be implemented in London. Currently, such a consultation process has only been initiated by the London Stock Exchange, and other trade bodies across Europe have not been able to persuade other exchanges to follow suit. Thus, in the absence of a consensus among at least a majority of the prominent Stock Exchanges across Europe, this proposal will be very difficult to implement across only one Stock Exchange. Another important thing that the critics point out that there will be numerous regulatory hurdles for the implementation of the above proposal, involving multiple agencies of the government. The multiple agencies and even the British exchequer itself may not have the same view of the subject as the industry bodies do, for them the normal business timings across all sectors and other organisations and offices would be a more important consideration while deciding what should be the usual business timings of this industry. Among other important practical considerations, which could have an impact in the bringing about of these timing changes at the exchange is the tendency among investors to wait till the closing hours to buy and sell, rather than making trades through the course of the day, which some industry experts believe is the result of the phenomenal growth of the Exchange Traded Fund (ETF) industry world over that rely heavily on the end of day prices of securities, which means a significant amount of business could get lost if the timing is shortened. Moreover, these days investors and investment management firms operate across geographies on a real time-basis; there are many cross trades that take place across exchanges. Needless to say, that these transactions are of very high value and more the number of trading hours on an exchange the greater number of such trades it can garner. The critics thus speak of a situation when all-important financial markets in the world are connected and work 24/7.
It is a reality now that global capital markets will see a greater degree of synchronisation in times to come. It is also not possible that investment management companies can be asked to disassociate from this synchronisation process. In the same way, it can also not be expected that the working hours of the participants be increased with this increased degree of harmonisation. It will put undue hardship on the market participants with severe consequences on their personal life and wellbeing. There is thus a greater urgency now to find an urgent solution to deal with this fast-evolving situation. The aim of the public consultation was to deal with a wide-ranging issue, but the most important concern was this, and to initiate a thought process towards an early resolution. The situation would be the same with every other major stock exchange around the world, and the headways made by the London Stock Exchange group in this regard would act as a guiding force for the rest.
This consultation process which gathered very strong support from market participants would definitely take the subject higher on the agenda of the stock exchange and other regulatory authorities. A greater amount of activity would also be seen with the various industry lobby groups who have been pushing on this agenda for long. Most importantly, there will now be wider consultation among major stock exchanges on how to take this evolutionary process forward. While it is a good solution for the stock exchanges to start working in shifts, so that a greater amount of synchronisation can be achieved, but doing so will not help in the cause of gender diversity. There will be several such important issues that will come to the fore when this consultation process moves forward before which an appropriate resolution is found that will suit all.
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