When Taiwan eventually extends trading hours on the stock exchange into the afternoon, as the Securities and Futures Commission (SFC) intimated yesterday, spare a thought for some poor souls. Stockbrokers will have to save their putting practice for the weekends and instead spend the entire day glued to their trading screens, while the nation's two most influential afternoon newspapers will have to find something else to fill pages that currently carry stock listings.
But don't worry about Mom and Pop, the legendary retail investors who still account for 90 percent of the US$8 billion-plus average daily turnover on the Taiwan market. The prospect of trading during their lunch hour may have a short-term effect on some waistlines, but few other negative side-effects are likely to be experienced.
True, at first, they might be a bit excited. Workforce productivity could take a dip in the weeks immediately following the implementation of the new trading hours, as office workers find themselves rushing off to sell the stock that they bought earlier that morning. But in the longer run, the extension of trading hours will actually be beneficial to them, to the stock market, and to the economy as a whole.
Indeed, once the early excitement of being able to trade all day wears off, the move will probably have the effect of making retail investors spend less time at their local brokerage shop, staring up at the screens. This is largely because even Mom and Pop have only so much patience. Mornings are fine, but they can't spend the entire day indulging in their favorite pastime. But they also can't bring themselves to walk away at noon, knowing that the stock they just bought could tumble at any minute over the next three or four hours.
So what will they do? Get a computer and trade at home, the way everyone around the rest of the world is doing. And therein lies the key benefit of the trading hours' extension: the market will become more efficient as more people trade online over a longer period of time.
This is precisely the reason why Electronic Communication Networks (ECNs) are shaking the foundations of Wall Street. It's also why Taiwan has simply had to face the reality of internationalizing its capital markets. When more people are connected online and are more easily able to offload and take on new shares, equilibrium (the matching of buy and sell orders) is easier to reach, and volatility is reduced. A less scary ride, in other words.
In theory, that is. The reality of online trading has so far been somewhat different, even in the US, where day-traders have helped push the NASDAQ up to scary heights.
Yet the prospect of the same happening in Taiwan should not deter the SFC. It has taken a fair amount of courage for the market's regulators to go so far as to announce their "preliminary" decision yesterday. This is in Taiwan's longer-term interests, and no amount of pressure from insiders -- such as the brokerages who will have to double their staffing costs and afternoon newspapers who have had it way too comfy until now -- should sway their judgment.
Internationalization has never been easy for Taiwanese authorities to accept, especially in the wake of the Asian crisis of 1997-99. That they are moving now in the right direction, and fairly quickly at that, is encouraging.
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