Today’s global markets enable investors to buy and sell a wide variety of financial instruments, from currencies to commodities, at almost any time of day.
But the ability to react just as quickly to price movements in stocks listed in other markets such as North America and Asia, outside of UK trading hours, has typically been a more complex and expensive exercise.
The upcoming launch of Global Equity Segment (GES), a new segment on London Stock Exchange will enable trading of certain S&P 500 stocks during London trading hours. These stocks include well-known American brands like Apple and General Motors, as well as some of largest Chinese American Depository Receipts (ADRs) such as Baidu and China Mobile.
The new segment will signify the start of a major change in this area. The GES has already attracted interest from UK and Chinese brokers alike, who are seeking to provide their clients with better access to trading in internationally recognised stocks.
The conundrum is a familiar one for many traders. If you hold Apple stock, for instance and news that impacts its price is broadcast outside of US trading hours, shareholders will either need to wait until the market opens or leave a resting order with a broker, in order to place a trade. Whether you are a retail trader, institutional asset manager or pension fund, this poses considerable time zone risk to your portfolio at a time when the impact of a 24-hour global news cycle is continuing to be felt.
London’s favourable time zone at the centre of the global business day continues to play a significant role in mitigating these risks and acts as a bridge for the world’s financial markets. This geographic advantage has also been cemented with a powerful mix of market expertise, a globally respected regulatory infrastructure and legal system – all of which helps foster deep global liquidity and tight spreads on some of the most well-known stocks.
The London Stock Exchange’s continued ability to attract diversified demand for global products is already being evidenced through the success of the International Order Book (IOB). The total daily value traded averages around US $300m and includes Global Depository Receipts, often referred to as GDRs.
GDRs represent an underlying stock and can be traded internationally, typically in US dollars. London Stock Exchange’s IOB is home to the largest GDR market in the world with 130
issuers from over 30 countries and offers cost-efficient, secure and transparent access to invest in companies operating in some of the world’s fastest growing countries in one marketplace.
The launch of the GES will facilitate even further access to trading in international names and will utilise CREST for trade settlement, a well-established UK Central Securities Depository that handles trade administration, payments, and change of ownership records after a transaction has been agreed between two counter parties. Utilising CREST’s Depositary Interest mechanism allows securities listed outside of the UK to be settled quickly, cheaply and efficiently like a domestic instrument, much like the process for trading blue-chip stocks such as Tesco or Vodafone and easily available via existing retail broker workflow.
For the retail investor it is important to know that trading on the segment does not attract stamp duty which may also add to its appeal. Linkages with the DTCC, a Central Securities Depository in North America also provides traders with the opportunity to buy in London and sell in New York, all within an industry standard of T+2 settlement cycle. This increases the time span UK investors can trade certain US stocks and Chinese ADRs from the current six and a half hours as per domestic trading hours to 13 hours each day.
Moreover, it provides retail and institutional investors in China with greater flexibility to trade certain US listed large-cap stocks.
The new segment builds on existing strong broker relationships at London Stock Exchange, which is seeing growing retail trader and broker demand across Asia.
With the launch of GES fast approaching, we look forward to bringing together a set of market participants looking for access to new global trading opportunities for the first time and broadening access to global equities for a diverse mix of investors.