Stock Exchange warns against first hour trading
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Your support makes all the difference.THE LONDON Stock Exchange yesterday warned investors that buying and selling stocks in the first hour of trading is risky because of wild swings in share prices.
In a statement confirming that the market will open an hour earlier, at 8am - to harmonise its trading hours with Frankfurt's Deutsche Borse and other members of the European alliance - the LSE reinforced previous warnings and urged brokers to "make their clients aware of the inherent risks" of trading right after the opening bell. The exchange added that member firms should advise investors to use "limit orders" to halt trading in a stock if the price moves outside a given range.
The admission that the low liquidity and volatility in share prices at the start of the day could damage investors is a victory for critics of the order book system - the LSE's flagship trading platform which electronically matches buyers and sellers of a stock.
Small investors and large institutions such as Legal & General have complained that the system - introduced more than two years ago in a bid to make trading more efficient - can trigger sharp price movements and reduce liquidity in some stocks. One broker said yesterday: "The LSE statement is a health warning for investors: people can be ripped off in the first hour."
A spokesman said that the LSE had consistently warned members since the launch of the order book of the dangers of trading at the start of the session.
The earlier trading hours start from 20 September.
As well as Frankfurt and the LSE, six exchanges - Amsterdam, Brussels, Madrid, Milan, Paris and Switzerland - have joined the European alliance.
In its statement, the LSE also said that following a positive response to its initial consultation with members, it would develop proposals to extend the order book to FTSE 250 stocks, to reduce the time taken to settle transactions and to use auctions and/or liquidity providers.
Outlook, page 17
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