World Stock Exchange: 24-hour trade would lift liquidity and cut costs
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Dismissing the London Stock Exchange as “Jurassic Park” is harsh. But hedge fund boss Paul Marshall, writing this week in the Financial Times, made a valid point. Income funds are a powerful force in the UK. Their hunger for dividends deters fast-growing start-ups from listing.
Marshall’s consequent vision of a vibrant 24-hour global stock exchange based in New York is not entirely fantastical. It could be a good thing for international investors.
By happenstance, fellow hedge fund tycoon, Steve Cohen is on a similar track. His vehicle Point72 Ventures is backing 24 Exchange, which is seeking regulatory approval for a US stock market that is open all hours.
Fixed market opening hours are an artefact of person-to-person trading in different time zones and sometimes the lunch habits of brokers. These days, trading is heavily automated and capital is often global. Focusing activity on a world exchange could increase liquidity, improve price discovery and reduce costs.
This electronic stock market would have no single physical location. But its natural nucleus would be New York exchanges, which have a combined capitalisation of $50tn, dwarfing competitors such as Shanghai. Companies have tapped US equity markets for an impressive $2.1tn over the past five years or so, according to Dealogic.
There are enough obstacles to ensure the World Stock Exchange remains a pipe dream for many years to come. First, stock exchanges are competing national institutions as well as trading platforms. China, for example, is putting heavy pressure on local companies to switch listings from the US to Shenzhen or Shanghai.
Second, a national regulator such as the Securities and Exchange Commission, might serve foreign investors poorly. Prudential watchdogs would rightly worry that a single liquidity pool would amplify risks.
Third, some investors are constrained by mandates that restrict where they invest. And a cash settlement system would need to translate fluently between multiple currencies.
Even so, the recent bull market has shown off New York’s competitive advantages. These include patient capital, financial ingenuity — albeit much of it self-serving — and deep research capacity. The prospect of a World Exchange based in the US should, at the very least, encourage laggards like London to up their game.
The Lex team is interested in hearing more from readers. Please tell us what you think of the idea of a world stock exchange in the comments section below.