Extending securities trading hours is generally believed to enhance market liquidity, but its potential impact on market volatility should not be overlooked.
The Tokyo Stock Exchange (hereinafter referred to as "Tokyo Stock Exchange") will extend trading hours on November 5th.
On October 9th, the Tokyo Stock Exchange announced that starting from November 5th, trading hours will be extended by 30 minutes as planned. This change signifies an important step for Japan's financial market towards a more efficient and international direction. Although this 30-minute increase may seem small, for a market that trades in seconds, it will greatly enhance trading flexibility.
As one of Asia's largest and the world's most important securities trading platforms, the Tokyo Stock Exchange's move has attracted widespread attention. It not only has a profound impact on investors and trading institutions but also plays a significant role in promoting the competitiveness and internationalization of Japan's financial market.
The intention is to promote international development.
Currently, the Tokyo Stock Exchange's trading hours are from 9 am to 11:30 am and 12:30 pm to 3 pm, with actual trading hours totaling 5 hours. After this adjustment, trading hours will be extended from 3 pm to 3:30 pm local time, and the Tokyo Stock Exchange's total daily trading hours will reach 5.5 hours.
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Looking at the trading hours of major global securities markets, even after the adjustment, the Tokyo Stock Exchange's trading hours are not very long.
The United Kingdom, France, and Germany have the longest daily securities trading hours, reaching 8.5 hours. The NYSE has a daily trading duration of 6.5 hours; the Hong Kong Stock Exchange has a trading duration of 5.5 hours; and the A-share market has the shortest trading hours, only 4 hours per day.
The Tokyo Stock Exchange's decision to extend trading hours stems from the diverse demands of market participants in recent years. The interconnectivity of the global financial market is continuously strengthening, especially between regions such as Asia and Europe, with cross-border transactions becoming increasingly frequent. Market participants generally hope to increase trading windows by extending trading hours to provide more flexible trading opportunities for domestic and international investors.
At the same time, extending trading hours also aligns with the overall policy of Japan's government in recent years to promote the reform and opening up of the financial market. Japan has been actively promoting the internationalization of financial services, hoping to further attract overseas funds and consolidate Tokyo's position as a global financial center. Extending trading hours is not only a technical adjustment but also a signal to the global market, indicating that the Tokyo Stock Exchange wishes to continue playing an important role in the global financial landscape.The Tokyo Stock Exchange has indicated that the current system change is implemented in response to the evolving market environment and the diverse needs of investors, while also aiming to further enhance the convenience of market users, international competitiveness, and resilience.
For foreign investors, the Japanese securities market remains attractive, especially in the Asian region, where the stability of the Japanese economy makes its securities market a relatively safe investment option. So far this year, the Japanese stock market has been setting new highs, and as of the closing on September 20th, the Nikkei 225 index has risen by 26.55% year-to-date. It ranks second among Wind's global important indices, just behind the Nasdaq index's 30.69% increase year-to-date. This has also prompted Japanese authorities to make a firm decision to enhance the competitiveness of the Japanese market.
Since the COVID-19 pandemic, global capital markets have faced significant volatility and uncertainty. In response to the drastic changes in the global market, many major exchanges have taken different measures to enhance market liquidity, which has posed a challenge to the Tokyo Stock Exchange.
For instance, both the Hong Kong Stock Exchange and the Singapore Exchange have optimized their trading hours and systems to enhance their international competitiveness. Japanese domestic investors and financial institutions have expressed the need for extended trading hours on multiple occasions in recent years. The current trading hours of the Tokyo Stock Exchange limit investors' ability to participate in overseas markets and conduct cross-time zone transactions due to the overlapping trading sessions of major global markets. Extending trading hours will help improve market trading efficiency and capital liquidity, thereby increasing the overall market activity.
Impact on Market Volatility
According to the Tokyo Stock Exchange's plan, starting from November 5th, the trading hours will be extended by 30 minutes, with the main change reflected in the adjustment of closing times. The opening time in the morning and the lunch break will remain unchanged.
This adjustment provides greater convenience for cross-regional trading in terms of scheduling, especially during the afternoon trading session, where Japanese investors can more flexibly respond to changes in the European and American markets.
For foreign investors, the extension of trading hours also provides more opportunities for their investment operations on the Tokyo Stock Exchange. Many Japanese investors are not only involved in domestic market trading but are also active in the US and European markets. The 30-minute extension of trading hours means that investors have more room for maneuver when facing cross-time zone economic data releases and market changes.
For international investors, especially cross-border capital management institutions, the extension of trading hours by the Tokyo Stock Exchange offers an opportunity to connect more closely with the global market. As the financial core of the world's third-largest economy, the Japanese securities market attracts a large number of international investors. After the extension of trading hours, investors will be able to adjust their investment strategies in the Japanese market more calmly, while reducing the restrictions brought by time zone differences.
For trading institutions, the extension of trading hours poses higher requirements for brokers, traders, and other market service providers. Brokers and fund companies need to adjust their internal trading systems to adapt to the new schedule. At the same time, traders may need to readjust their working hours and operational pace to ensure efficient service over the extended trading hours.For high-frequency trading firms and algorithmic traders, extending trading hours also means more opportunities for market participation and arbitrage. The new trading sessions will enable these institutions to utilize more time periods for quantitative analysis, trading, and data capture, thereby improving trading efficiency.
However, extending trading hours is not a perfect solution, and the potential impact on market liquidity and volatility cannot be ignored. This can also explain why the Tokyo Stock Exchange had hoped to extend trading hours in 2000, 2010, and 2014, but encountered opposition. At that time, opponents believed that extending trading hours would increase costs, requiring significant adjustments from the front end to the back office. In 2021, the Tokyo Stock Exchange also considered discussing the extension of stock trading hours again, but it has only now come to fruition.
Generally speaking, extending trading hours is usually considered to enhance market liquidity because investors trade over a longer period, which helps to increase the matching opportunities between buyers and sellers. Longer trading sessions are expected to reduce the pressure of concentrated buying and selling, thereby reducing market volatility. However, as trading hours are extended, trading costs may also increase, especially for investors and institutions that rely on intraday trading. Whether the market can maintain consistent trading activity and how to deal with potential liquidity shortages during certain periods are potential challenges faced after extending trading hours.