Nasdaq OMX Group Inc., the second-biggest U.S. exchange operator, said it plans to extend pre-market stock trading by three hours starting next month.
Trading will begin at 4 a.m. New York time, instead of 7 a.m., according to a Feb. 12 statement. The change will happen no earlier than March 18, subject to approval by the U.S. Securities and Exchange Commission.
Nasdaq is seeking to attract more trading after U.S. equity volume declined for a third straight year in 2012. The exchange is expanding into derivatives, setting up a new London-based market and buying a 25 percent stake in a Dutch alternative trading system focused on stocks and equity derivatives.
“Fixed costs increase when trading hours are extended,” said Gavin Parry, managing director of Hong Kong-based brokerage Parry International Trading Ltd. “One aspect is that bigger firms are better positioned to absorb the costs than smaller ones, which could impact service provider participation given it is tentative the increasing hours will increase turnover.”
Average daily volume for equities listed on all U.S. exchanges was 6.07 billion shares in the fourth quarter, 18 percent less than a year earlier, according to data compiled by Bloomberg. Nasdaq had a 21 percent decline in full-year net U.S. cash equity trading revenue to $122 million last year, the company said Jan. 31. NYSE, the biggest operator of U.S. exchange, said its cash trading and listings net revenue dropped 12 percent over the same period.
Trading hours are being extended in other parts of the world. Hong Kong Exchanges & Clearing Ltd., the world’s largest exchange company by market value, said it received regulatory approval to start after-hours trading on some equity-index futures and will begin the service on April 8.
Hang Seng Index and H-shares Index futures will be available for trading from 5 p.m. to 11 p.m. from the date, in addition to regular hours, the bourse said in a statement yesterday.
“By stretching periods there is a possibility price discovery could be impacted as liquidity spreads out over time instead of a more concentrated trading period of higher activity,” said Parry.
Equity volume fell around the world last year, with the average daily trading on Hong Kong’s Hang Seng Index dropping 12 percent, while it sank 5.7 percent for the BSE India Sensitive Index. For companies listed on U.S. exchanges, it fell 18 percent, data compiled by Bloomberg show.