The London Stock Exchange is launching a Global Equity Segment (GES) in the fourth quarter of this year which will allow shares listed in New York to be traded in the UK time zone by international investors.
Brian Schwieger, global head of equities at London Stock Exchange Group, told Markets Media that the new segment will allow investors to trade GES names if news breaks when US markets are closed and provide the efficiency of a real-time valuation management platform.
Schwieger said: If there is a more liquid pool of US and Chinese names in Europe this could challenge the norms and approach to trading and risk management by reducing time zone risk.
The segment will launch with approximately 50 stocks from the benchmark S&P 500 index including Alphabet, Amazon, Apple and General Motors. In addition, investors will be able to trade 30 Chinese American depository receipts including Alibaba, Baidu, Ctrip and Futu. ADRs are securities which allow shares listed overseas to be traded in New York in the same way as domestic stocks.
US names already trade in Milan and Germany but we can bring Asian retail investors into our ecosystem and global liquidity providers to support the offering, added Schwieger.
He continued that since the launch of Shanghai-London Stock Connect more than two dozen Asian brokers have connected to London Stock Exchange and retail trading has been approximately 20% of volumes on this new segment.
Shanghai-London Stock Connect is the first fungible cross-listing mechanism enabling international investors to access China A-shares from outside Greater China and allowing London-listed corporates to raise funds in China.
Last month Huatai Securities became the first issuer to use Shanghai-London Stock Connect. The Chinese technology-enabled securities group raised $1.54bn (1.35bn) through listing global depository receipts on the Shanghai Segment of London Stock Exchange.
Schwieger said the European time zone is critical as a link between the Americas and Asia.
“London can act as that global bridge as London has the expertise, knowledge and ecosystem to capitalise on that role,” he added. “The financial world is becoming more global and London has a big part to play.
GES can offer the ability to trade, clear and settle securities in US dollars in the London time zone because Crest, the UK CSD, already has a link to DTCC, the US clearing house, though using a Crest depository interest (CDI).
The central securities depository connection is an established and recognised mechanism but we are bringing market participants together in a new way for the first time,” said Schwieger.
GES securities will be traded on XLOM, a multilateral trading facility that is already used by the LSE, and CDIs can move quickly and easily between London and New York. This means an investor can buy GES securities in London in US dollars during regular UK trading hours and sell in New York on the same day. Both trades would then settle T+2 in the respective markets.
There is no reason why the biggest names should not trade for 24 hours around the globe which brings economies of scale, added Schwieger. Trading is moving to fewer global venues who offer more securities.
He added that if liquidity builds, LSE will expand the number of securities in GES including offering Asian names to US investors during London trading hours.
The DTCC is independent but we are open to forming partnerships with exchanges who own CSDs, Schwieger said.