Norges Bank Investment Management (NBIM), which manages the investments of the Government Pension Fund Global (GPFG), supports proposals to shorten the trading hours of the London Stock Exchange (LSE).

Responding to LSE’s Consultation on market structure and trading hours, which closed on 31 January, NBIM stated recent trends, such as the institutionalisation in the asset management industry and the growth of trading at the close, have changed the distribution of daily volume and overall 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 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. Both retail and institutional investors are likely to benefit from these improvements,” NBIM global head of trading, Emil R. Framnes and NBIM global head of systematic strategies, Yazid M. Sharaiha, said in a letter.

The consultation proposed four new trading hour options or to maintain the current hours. NBIM opted for those between 9:00-16:00, a shortening of the current hours 8:00-16:30.

“We do not expect the adjustment of LSE’s trading hours to impact the geographic advantage of Europe as a bridge between Asian and American markets. A carefully designed reduction in trading hours would leave sufficient time for overlap at the start and the end of the trading session for trading opportunities from regions outside Europe, given today’s largely electronic markets and the widespread use of algorithmic trading,” NBIM said.

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