Published On: Sat, Sep 18th, 2010

HK Exchanges Pushes Plan To Extend Trading Hours

Hong Kong Exchanges & Clearing Ltd. (0388.HK) shopped around a plan Friday to extend its four-hour trading day in a bid to bolster its status as an international financial center.

The proposal to lengthen sessions by up to one and a half hours is aimed at better aligning trading hours in Hong Kong with those in mainland China and improving the exchange’s ability to compete with rivals in the region with longer trading hours, the bourse operator said in a paper seeking market views.

The plan is a watered-down version of one nearly a decade ago that would have vastly lengthened trading. The earlier scheme was shot down by the influential brokerage community, which prizes its long lunch breaks.

Hong Kong’s trading day is among the shortest of global exchanges, with key European bourses trading for over eight hours and New York and nearby Singapore trading for six and a half hours.

Increasing the overlap with the mainland is critical, the bourse said, because more than 70% of Hong Kong trading volume comes from mainland-related securities and the amount of cross-listed products are likely to keep increasing in light of the territory’s role as China’s offshore yuan center.

The proposal would start the morning and afternoon sessions earlier and reduce the two-hour lunch break. The current late starts for the sessions mean that “our investors can only react to market news after their counterparts in the mainland market,” the paper said.

The exchange also seeks to narrow the gap between its opening times and those of competitors such as Japan, Taiwan and Singapore. “It is important for us not only to overlap our trading hours with the mainland’s but also to be compatible with the rest of the world, if we wish to function fully as the international financial center of China,” it said.

Hong Kong Exchanges has proposed shifting the morning session a half hour earlier–opening at 9:30 a.m. and ending at noon. The afternoon session would start at 1 p.m. or 1:30 p.m., instead of the current 2:30 p.m., while trading would still end at 4 p.m. This would shorten the lunch break by up to an hour.

The morning sessions for China’s Shanghai and Shenzhen securities markets begin at 9:30 a.m. and finish at 11:30 a.m. The afternoon sessions start at 1 p.m. and finish at 3 p.m. in Shanghai and 2:57 p.m. in Shenzhen.

Many brokers complain the longer hours would cut into their lunch break, which they say they use to entertain clients. Hong Kong’s influential brokerage community was instrumental in shutting down HKEx’s 2001 plan to extend the trading day to as long as 11 hours, with proposals to abolish the lunch break and add an evening session.
Some remain skeptical about the changes.

“If people have a trade to make, they do it,” one analyst said. “I’ve never heard anyone moan to me about how the trading hours aren’t lined up.”

But others, arguing the measures aren’t dramatic enough, advocate abolishing the lunch break. “Not many exchanges have a compulsory siesta,” said high-profile shareholder activist David Webb.

Continuous trade would encourage more retail investors in Hong Kong to directly manage their investments because they would have access to the market during their own lunch breaks, Webb said.

“Furthermore, for traders who are highly leveraged with the overall aim of market-neutral positions, continuous trading would allow them to react sooner to news which emerges during the lunch hour,” he wrote in a recent article.

A proprietary desk trader at a major firm said the current setup in Hong Kong “is like having two trading days. You have to think carefully about how to position yourself before the lunch break. Shanghai can change the market over lunch.”

Analysts and the exchange agree that longer hours alone wouldn’t significantly boost trading volume because a large proportion of trades are done in the first and last half hours of the day.

-By Kate O’Keeffe, Dow Jones Newswires

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