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Starting today, the lunch break for participants on the Hong Kong stock exchange will be cut to one hour from 90 minutes, as part of an effort by the Hong Kong Exchanges and Clearing (HKEx) to extend trading hours and boost its ability to compete with regional and global peers.
Despite street protests by stock traders and brokers, from today onwards afternoon trading will resume at 1pm, instead of 1.30pm, resulting in a 30-minute extension of the trading day. The closing time for the afternoon session will remain unchanged at 4pm and the morning session will continue to run from 9.30am to noon.
This is the second phase of an overhaul that began almost exactly a year ago when the start of morning trade was pushed forward by 30 minutes and the lunch break trimmed to 90 minutes from two hours. Today’s change means that the trading hours in Hong Kong for securities, stock futures and stock options will be extended to five-and-a-half hours a day, compared to just four hours before the first phase of the plan took effect last March.
“The implementation of the second phase of the new trading hours is aimed at aligning the opening of the Hong Kong securities market’s afternoon trading session with that of the mainland [China] market, and further increasing the overall competitiveness of HKEx’s markets in the region,” the Hong Kong bourse wrote in a statement last week, flagging the new trading hours.
The move is in line with a trend among stock exchanges worldwide to adopt all-day trading. Australia, India and South Korea have already scrapped lunch breaks and Singapore joined them last year, while the Tokyo Stock Exchange extended its morning session by half an hour. Major exchanges in the West, including those in the UK, Germany and the US, also have an uninterrupted trading day.
“In general, for Asia, the more the various exchanges harmonise their operating hours, the better,” said Rob Laible, head of sales trading for Asia ex-Japan at Nomura, in an email to FinanceAsia on Friday. “You constantly hear that Asia is not a ‘sector’ market, but rather a ‘country’ market. If the exchanges can align their operating hours more consistently, then you have a real chance to see more cross fertilisation with the various stocks on different exchanges.”
However, local brokers and traders are not happy with the changes, which they say makes it difficult for them to meet with clients during lunch — a practice they say is deeply embedded in local culture and an important part of doing business. Others argue, though, that many market participants are already trading several different markets, meaning there is always somewhere that is open and requires their attention.
“The reality is that for institutional brokers based in Hong Kong that are typically trading Apac [Asia-Pacific], one exchange’s reduction in the lunch hour break does not have a material effect,” said Laible.
In a newsletter published in July last year, the HKEx said that Hong Kong is one of the few key exchanges in Asia-Pacific that retains a lunch break during the normal trading session. It added that except for the domestic Chinese markets, Hong Kong’s current trading hours for securities and derivatives [before today’s extension] are the shortest among the major exchanges in the world.
“HKEx’s recent decision to lengthen its trading hours will bring it more into line with international practice,” the operator wrote. “Market globalisation and intensifying competition may warrant further changes in HKEx’s trading hours in the future.”
So far, the longer trading hours don’t seem to have affected turnover much. During the first three months of 2011, average daily turnover in Hong Kong’s securities market reached HK$75.9 billion ($9.8 billion), which represented an increase of 17% from HK$64.8 billion during the same period a year earlier, according to HKEx data. That is slightly down on the average of HK$69.7 billion for 2011 and almost unchanged from HK$69.1 billion in 2010. However, it is worth noting that the turnover towards the end of the year was hurt by the sharp fall in share prices. In terms of the number of shares traded, average daily turnover reached a record high of 162.2 billion shares in 2011, up from 140.5 billion in 2010.
The average daily trading volume of futures and options reached 572,275 contracts last year, a record high and an increase of 22% compared with 467,961 contracts during 2010, according to the same data.
As the stock market operator seeks ways to grow even more competitive, market players have some suggestions.
“The most common items that people would like to see change include the cost of trading, the exchange’s throttles, which can limit the throughput to the HKEx, and the closing price mechanism, which is unique,” Nomura’s Laible said. “Given their monopoly and massive market cap, people would like to see the overall costs of transacting go down. Perhaps the introduction of competition would drive that change.”
As of 2010, the Hong Kong exchange’s market capitalisation stood at $2.71 trillion, ranking third among peers in the Asia-Pacific region. Ahead of Hong Kong, the Shanghai and Tokyo stock exchanges had a market cap of $2.72 trillion and $3.82 trillion, respectively, according to the World Federation of Exchanges. According to HKEx data, the combined market cap on the Hong Kong exchange had fallen to about $2.3 billion as of the end of 2011.
