The London Stock Exchange (LSE) has launched a consultation on potential changes to the market’s structure, including changes to trading hours, as well as plans to improve the liquidity of smaller cap securities, and of intraday auction activity.

Five alternative sets of opening hours are suggested for the London exchange, including retaining the existing 8am to 4.30pm arrangement.

One major benefit of a change would be to concentrate liquidity within the new trading hours, said the LSE.

However, there would be a reduction in overlap with US and/or Asian trading hours, which might hit trading participants in those regions, it said. Changed hours would also – given that major trading desks are pan-European – mean all main European trading venues would need to be aligned, to maximise benefits.

And new regulatory reporting times would require regulatory approval. The paper said a co-ordinated approach by European exchanges is needed for the changes to be effective.

The proposal follows a recent call from the Association for Financial Markets in Europe (AFME) and the Investment Association (IA), to shorten and harmonise operating hours for European stock exchanges, to between 9am and 4pm GMT.

“Our members tell us that a reduction of 90 minutes in European markets would bring significant benefits to the market structure, concentrating liquidity and allowing adequate time to absorb corporate announcements,” the AFME and IA said.

They also said shorter hours would improve the mental wellbeing of staff and encourage staff diversity, allowing firms to attract a wider variety of talent.

“Anecdotal evidence from members is that trading remains one of the areas of financial services where staff face significant mental health issues,” they observed. “We consider that the excessively long hours play a major contributory part in generating and perpetuating this problem.”

Responding to the LSE paper, Galina Dimitrova, director for investment and capital markets at the IA, said: “We are very pleased the London Stock Exchange has listened to traders’ calls.”

She added: “We need to call time on the long hours culture, which is detrimental to diversity and mental health, and inefficient for the markets. A shortened day will benefit the markets, those that operate them and ultimately the clients we serve.”

Meanwhile, the LSE consultation also aims to strengthen trading in small cap securities, which has seen a reduction in numbers of specialist brokers and advisers. The LSE suggests reducing the number of daily auctions for the Stock Exchange Electronic Trading Service SETSqx platform – on which smaller caps are traded – from five to three.

“Almost 57.7% of trading activity on the service occurs during the closing auction,” said the paper. “By reducing the number of auctions, liquidity may become concentrated in the remaining auctions, providing more meaningful price discovery and trading sizes.”

The paper also canvasses ideas for improving liquidity during the LSE’s mid-day intraday auction, introduced in 2016 to offer the opportunity to trade block orders at a traditionally low volatility point in the day. Between inception and end-September 2019, these auctions have attracted only 0.1% of value traded on SETS.

The consultation closes on 31 January 2020.

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