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Tokyo Stock Exchange to Discuss Longer Cash Equity Trading Hours

·4-min read

(Bloomberg) -- The Tokyo Stock Exchange will form a working group to discuss extending trading hours past the current 3 p.m. close, as well as other changes to its cash equity market.

The group will discuss the “significance, effects, methods, impacts” of longer trading hours, the bourse said in a statement, confirming a report in the Nikkei on Monday. The body, to be composed of trading participants, institutional investors and system vendors and observed by the Financial Services Agency and others, will compile a report by around October.

If realized, longer hours would be the first significant change in trading in Tokyo in over a decade. In 2011, the exchange shortened its lunch break by 30 minutes to the current one hour. The Tokyo exchange now trades between 9 a.m. and 3 p.m. local time, with the break between 11:30 a.m. and 12:30 p.m., making the five-hour trading day considerably shorter than many other regional rivals.

The bourse is also considering canceling the fixed lunch break, the Nikkei said, and that a change could come in time for a system renewal in 2024.

“It’ll be important to have a debate in the securities industry,” Finance Minister Taro Aso said before the confirmation. Longer hours wouldn’t lead to much burden on those offering online services, but “for the many places offering face-to-face services it will impact staffing and opening hours, so it’s not easy to accept.”

The working group will also discuss responses to long holidays, after a period of 10 days in 2019 during which markets were closed, as well as enhancing the resilience of the trading system.

Online Brokerages

A similar recommendation in 2014 for the exchange to consider an evening session failed to result in changes. The plans were dropped following opposition from traditional brokerages, who said longer hours would increase costs. Some members of an advisory panel at the time also called for a separate afternoon session.

But with a growth in online brokerages since that attempt, a proposal could lead to a clash between brokerages offering in-person services and the increasing number of online outlets. One of the goals, according to the Nikkei, is to provide opportunities for Japan’s rising number of retail investors, whose ability to trade during work hours is limited. Much will depend on how any changes are actually implemented.

“Online brokerages will be in favor, and they’re much bigger than they used to be,” said Hajime Sakai, chief fund manager at Mito Securities Co., who cautioned it took years of preparation to shorten the lunch break. “It’ll take time but it’s going in the direction of expanding hours. That’s the way the times are trending.”

Closing Price

A lengthy consultation period is likely before any changes are seriously considered.

“If really implemented, this would require a lot of adjustments from both front-end to back,” Takeo Kamai, head of execution services at CLSA Securities Japan Co., said. “We’ll really need to see how much support this idea will get from the street.”

With most companies reporting earnings after the close of market, trading on earnings is often done on exchanges overseas, or on proprietary trading systems (PTS) run by securities firms, such as the SBI Holdings-backed Japannext Co.

There has been renewed interest in such alternative venues since the TSE’s unprecedented outage last October, which highlighted how centralizing trading in Japan is. In March, Cboe Global Markets Inc. agreed to acquire Chi-X Asia Pacific Holdings Ltd. to expand its reach into Japan and other markets. A growth in rival venues could be a threat to the Tokyo exchange, though recently appointed CEO Hiromi Yamaji has said he welcomed the competition.

“Longer trading hours does not increase the amount of money that people have to trade,” said Travis Lundy, an analyst who publishes on Smartkarma. “One of the important functions of a market is its daily settlement mechanism - a closing price. A lot of volume gets traded around that price and a closing auction function is normal. Putting that much later would be seriously inconvenient and serve nobody.”

(Updates with confirmation from Tokyo Stock Exchange)

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