Comments on: Why do stock exchanges still close?

Question: Why do stock exchanges still close?

fvw — Mon, 16 Oct 2006 09:19:29 -0800

Why do stock exchanges still close? It's nice for the traders to get some time off, but in this modern age where you no longer have to stand on the floor shouting at people, is it still necessary? Does it have some economic function?

By: ThePinkSuperhero

ThePinkSuperhero — Mon, 16 Oct 2006 09:33:58 -0800

I imagine the head of all the stock exchanges seeing this question, saying, Great idea!
I imagine all the traders coming to your house to kill you.

It is an interesting question... I wonder if it is completely based on the worker aspect, or if there's another variable.

By: GuyZero

GuyZero — Mon, 16 Oct 2006 09:34:37 -0800

Presumably if stock exchanges were open 24 hours, maost financial organizations would need to staff up 24 hours a day, which may be ok for the great unwashed, but for i-bankers? Probably not. Presumably stock exchanges are hold onto the old-fashioned concept that you don't need to be working 24 hours a day.

Additionally, many companies make important announcements about earnings, etc, while the exchanges are closed so that there is less opportunity for short-term arbitrage because some people may not have heard that company XYZ is lowering their projected earnings, etc.

Most stock exchanges also do various system maintenance activities during off-hours.

Finally, stock exchanges are just like any other business and are legally bound to close for holidays whereever they're located. So even if the TSE was open around the clock, they'd have to close for Christmas, etc.

By: smackfu

smackfu — Mon, 16 Oct 2006 09:38:36 -0800

For something to change, there has to be an incentive for it that outweighs the disadvantages. "Because we can" doesn't really do it.

So the real question is: What benefits would there be to a 24-hour exchange, that aren't currently handled by the after-hours trading system that exists?

By: randomstriker

randomstriker — Mon, 16 Oct 2006 09:55:41 -0800

Transactions are still being conducted through designated traders -- they're just working at terminals instead of on the floor.

By: NotMyselfRightNow

NotMyselfRightNow — Mon, 16 Oct 2006 10:00:42 -0800

There are dozens of reasons related to systems upkeep, staffing, maintenance, holidays and all the rest, but all of those can be overcome. The major issue? A stock can tumble very far in eight hours. If you're a stockholder, do you really want the market to be able to shift significantly while you're asleep? No good can come from that for you.

By: mbd1mbd1

mbd1mbd1 — Mon, 16 Oct 2006 10:08:02 -0800

Finally, stock exchanges are just like any other business and are legally bound to close for holidays whereever they're located. So even if the TSE was open around the clock, they'd have to close for Christmas, etc.

Wait, what? Is this true in Canada?

By: odinsdream

odinsdream — Mon, 16 Oct 2006 10:13:39 -0800

legally bound to close for holidays

This is bizzare - and isn't true.

By: blue_beetle

blue_beetle — Mon, 16 Oct 2006 10:21:48 -0800

It creates a pause in trading that allows panics and buying sprees to be curtailed, and lessens the impact on the economy.

By: JohnnyGunn

JohnnyGunn — Mon, 16 Oct 2006 10:25:48 -0800

In some sense it would hurt the average investing public. Being closed allows for orderly dissemination of information and puts all players big and small on the same level playing field. If a local company came out with bad news like Health South did over the weekend, the average Joe would not get a chance to get out and the illiquidity and volitility would hurt him. As it is, on the opening, all market participants can trade at the same price after both buyers and sellers have had a chance to digest the info.

Also, as others noted, the additional infrastucture costs of maintaing systems and having traders would not be worth the revenue gain.

Most of the large cap US stocks can be traded 24 hours around the globe by accessing local markets. There occasionally are decent arb opportunities for those who have the resources and can access the local exchanges.

By: wackybrit

wackybrit — Mon, 16 Oct 2006 10:59:10 -0800

Comparison: Imagine the chaos of a football game that doesn't stop at all for an entire quarter with no time for strategy, resetting the ball, or anything. That's what would happen.

By: GuyZero

GuyZero — Mon, 16 Oct 2006 11:13:56 -0800

Why do people think Exchanges don't close for holidays?

TSX Trading Hours & Holidays.

One could debate whether they're legally required to close, but why would they close if they're not required to? Stores in Nova Scotia were being charged for opening on Sunday until recently. Banks and other business don't close on holidays out of the goodness of their hearts. There are laws about these things.

I suppose they could stay open and pay everyone overtime, but I'm not sure if that's illegal or merely unusual.

By: Monkey0nCrack

Monkey0nCrack — Mon, 16 Oct 2006 11:27:26 -0800

I have no answer, but the question rings true for Banks, delivery services and the like.

By: mbd1mbd1

mbd1mbd1 — Mon, 16 Oct 2006 12:09:40 -0800

One could debate whether they're legally required to close, but why would they close if they're not required to?

Because there is no one for them to do business with. A critical mass of the population decides they aren't going to work that day, and so everyone who isn't in the service industry closes. Many restaurants, bars, movie theaters, and gas stations, etc all stay open on holidays because people like to use these services on their personal time.

So are there really laws requiring banks and stock exchanges to close, or is it just social convention?

By: Tacos Are Pretty Great

Tacos Are Pretty Great — Mon, 16 Oct 2006 13:14:56 -0800

24 hour trading is likely to come at some point. As it stands, it is approximated in some cases.

As an example, you can trade DCX in New York. Or London. Or in Germany. Or in Tokyo. I believe it's traded at least 22 hours a day, and it might be the full 24.

By: raf

raf — Mon, 16 Oct 2006 13:19:41 -0800

The economic reason is that markets are only efficient when they are liquid, and they are only liquid when lots of people are looking at them and actively trading them. Were a stock exchange to operate 24 hours, then during the part of the day when few people are trading or looking at the market, a stock would be quite succeptible to manipulation and large swings in price.

This could be overcome by having all the major firms staff their trading desks 24/7, but they have no reason to do so. Customers are willing to wait to trade during normal business hours (or they participate in illiquid after-hours markets), so there is no incentive to try to expand hours.

By: GuyZero

GuyZero — Mon, 16 Oct 2006 13:27:16 -0800

IANAL, but here's a prarphrasing of Ontario's regulations for statutory holidays. The short answer is that while banks are not required to close per se, they cannot require their employees to work on those days. To quote:

Except for persons employed in a hospital, a continuous operation, or a hotel, motel, tourist resort, restaurant or tavern, an employer cannot require an employee to work on a public holiday that falls on a day that would normally be a working day.

(This wording is nearly verbatim that of the actual legislation.)

I'm not sure what constitues a "continuous operation" (perhaps a refinery) but I would guess that a bank doesn't qualify.

Therefore, while the TSX could, in theory, remain open on Christmas, they would be unable to compel their employees to come into work. They could probably find some volunteers to work for extra pay, or make working on holidays part of their standard employment agreement, but presumably the hassle would be too much trouble, plus the fact that there would be few trades anyway. And there is some question as to whether such a contract could be enforced - the courts (or the Labour Relations board in Ontario) have overturned unenforceable clauses in employment contracts before.

Anyway, the real question is, "why bother?"

By: Clay201

Clay201 — Mon, 16 Oct 2006 15:01:12 -0800

According to Noam Chomsky, there's a darn good reason for them to not close.

In his book Understanding Power (which is basically just transcripts of various Q&A sessions he's conducted), he says that the money used to buy on the NYSE today will, after the closing bell, be used for the same purpose in the Japanese stock market. While we sleep, they're trading. Then, when the sun rises, the money comes back here.

Exactly how accurate this is, I don't know. But certainly it's true that if we had 24 hour markets here in the US then investors would have to decide... at three AM, do they want to play the NY market or the Tokyo market? Maybe they could do both simultaneously, but that could get pretty messy pretty fast. More to the point, though, you'd have other markets competing with the US stock market for investment dollars. And like most "free market" capitalists, the folks who run the stock market loathe competition.

By: true

true — Mon, 16 Oct 2006 17:29:30 -0800

Many futures / options exchanges are open ~23 hours or so from Sunday afternoon through Friday night with a small period of downtime between trading days.

Also, relating to laws - no market in the US that I know of is closed more than 3 days in a row, and that may in fact be a law. For example, if the market is closed on Thursday for Thanksgiving it will be open at least part of the day on Friday.