The manager of Norway’s NOK10.6tn (€1tn) sovereign wealth fund said it supports London Stock Exchange’s (LSE) idea of shorter trading hours, saying both retail and institutional investors are likely to benefit from the improvements laid out.
Norges Bank Investment Management (NBIM), which runs the Government Pension Fund Global, wrote in a letter to the exchange: “The basic intuition is that the shortening of trading hours and their harmonisation with best practices from North America and Asia could concentrate trading and, thus, increase the probability of a natural liquidity match.”
The improvement in market liquidity could, theoretically, also lead to improvements in price discovery, it said in a response to LSE’s consultation launched on 10 December.
The consultation, which ended on 31 January, is on several potential market structure changes including an adjustment to trading hours.
LSE made four specific proposals for reducing its current trading hours of 8am to 4pm London time, each one cutting the daily period by either one or 1.5 hours, and also included the option of maintaining today’s timetable.
It said the European banks and brokers’ Association for Financial Markets in Europe (AFME), and the Investment Association (IA), had recently proposed European exchanges reviewed trading hours with the aim of benefiting market structure as well as improving wellbeing, culture and diversity across their member firms.
In the letter, signed by Emil Framnes, NBIM’s global head of trading, and its global head of systemic strategies, Yazid Sharaiha, the Oslo-based manager said it used a wide range of trading venues.
Differences in market design across venues – from transparency regimes to trading protocols and trading hours – could have an impact on market liquidity and price discovery, said Framnes and Sharaiha.
Recent trends in financial markets, such as the institutionalisation in the asset management industry and the growth of trading at the close, had changed the distribution of daily volume, they said. Overall, they added, this made it more challenging for institutional investors to access natural liquidity during continuous-time trading.
“In this regard, we believe that the proposed adjustment of LSE’s market trading hours can potentially improve trading conditions,” the pair wrote.
NBIM plumped for the 9am to 4pm London time as the opening hours option that could benefit markets the most.
“This choice would allow for adequate time in the morning for maintaining alignment with Asian trading hours, and at the same time shift the UK trading day nearer to the opening of North American markets, where we observe a sizeable peak in trading interest,” Framnes and Sharaiha wrote.
These hours would also benefit after-hours activities, they said, such as placements, that could take place earlier allowing investors to make timely decisions.