The London Stock Exchange (LSE) is preparing to open up new market access by offering round-the-clock trading next year, in one of the biggest changes in the history of the trading exchange. The new overnight trading site will focus on exchange-traded products (ETPs) initially, giving investors more flexibility in trading beyond the regular trading hours.
The move is in line with increasing demand for nearly 24-hour access to financial markets from the rapidly growing global investing market, trading technology and the growing popularity of exchange-traded funds (ETFs) and other listed investment products.
First, the overnight platform will be limited to exchange-traded products; it will allow investors to buy and sell eligible securities outside regular trading. The phased implementation will allow us to understand market participation, liquidity and operational efficiency to make a more accurate assessment for the exchange before expanding on the platform.
Greater flexibility in time for trading and in terms of the market is required for trading hours to remain competitive; the London Stock Exchange’s decision is a sign of how financial markets are evolving as investors do so.
A 24-hour trading environment would allow investors in Asia, Europe and the Americas to react to breaking news, economic data and geopolitical events in a faster way than they would have had to wait for the next regular trading session. This is particularly useful in today’s global interconnected financial markets, where key events are happening outside of the everyday trading hours.
Exchange-traded products have become the natural starting point of extended trading because they are multilayered, growing popular and offer a very high level of liquidity. ETFs and similar products offer access to equities, bonds, commodities and various market indices through a single listed security.
Leveraged globally, the London Stock Exchange is one of many global exchanges and trading platforms experimenting with longer trading windows. Better electronic trading systems have made access to the market over the long term more feasible and investors' needs for more convenient trading.
Market pros say overnight trading could draw more international investors to the LSE, particularly those who work in more than one global market and in more markets. It could also make the exchange more competitive as more and more international investors want to access markets irrespective of where they are located.
But analysts note that longer trading hours may be difficult as the overnight market liquidity is weaker, bid-ask spreads are larger, and price volatility is much higher than regular market sessions. Regulators and market participants will be closely watching these factors as the new platform is launched.
The London Stock Exchange will also provide further details on eligible products and trading hours and the operational environment and when the product will be launched soon. Clearing, settlement and risk management for overnight trading will also be provided.
The launch of 24-hour trading is a significant milestone for the London Stock Exchange and proves the continuing evolution of global trading. By starting with exchange-traded products, the LSE is investing in its trading system and is ready to help the evolving needs of investors who want more flexibility in an increasingly global market.
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