German Stock Exchange Suffers Losses in Q2
The Deutsche Börse has released its second quarter financial results, showcasing a strong performance across various segments. However, the discussion surrounding the extension of trading hours to a full 24-hour cycle continues to dominate the financial landscape.
Second Quarter Financial Highlights
Analysts expressed high regard for Gregor Pottmeyer, the outgoing CFO of the Deutsche Börse, acknowledging the large shadow he will leave behind. During a conference call on Friday afternoon, Pottmeyer guided analysts through the Deutsche Börse's financials.
The IMS segment of the Deutsche Börse saw only a 4% increase in net revenues but a 31% increase in Ebitda in the second quarter. The Deutsche Börse recorded the largest net revenue increases in trading and clearing, and in fund services, with increases of 14% and 15% respectively. Operating costs for the Deutsche Börse rose by 3% to €620 million in the second quarter.
Despite the strong second quarter results, the Deutsche Börse did not raise its full-year forecast. The treasury result for the Deutsche Börse fell by a quarter to €274.5 million in the second quarter compared to the previous year.
The 24-hour Trading Debate
The 24-hour trading debate focuses on concerns about market stability, liquidity, and volatility as major stock exchanges consider extending trading hours to a full 24-hour cycle.
Stability Concerns
Traditional asset managers worry that round-the-clock trading could complicate portfolio valuation, as closing prices—a critical reference for performance measurement—would no longer exist in their current form. Continuous trading might require constant monitoring and adjustment of valuations, potentially destabilizing firms used to defined trading windows.
Liquidity Impacts
The London Stock Exchange Group (LSEG) and others are evaluating how 24-hour trading would affect liquidity concentration, which today typically clusters around opening and closing auctions. There is uncertainty whether liquidity would be evenly distributed throughout extended hours or become too thin during off-peak periods, possibly harming price discovery.
Volatility Concerns
Critics argue that continuous trading might increase market volatility, especially outside traditional hours when fewer participants are active. Conversely, proponents—especially from the crypto space—contend that 24/7 markets could reduce risks by allowing more gradual price adjustments and continuous information flow.
Technological and Regulatory Challenges
Exchanges must consider infrastructure upgrades to handle continuous operations and address compliance issues, including protecting investors during less liquid periods. Regulatory bodies have delayed approvals, seeking more clarity on systemic risks before endorsing overnight trading expansions.
Global Trends
Several exchanges such as Nasdaq (US), CBOE, NYSE, and Tokyo Stock Exchange are either expanding trading hours or seeking approval to do so. This shift is driven largely by rising retail investor demand, including international participants active across different time zones.
The Deutsche Börse remains cautious about extending trading hours, following demand from market participants.
Leadership Transition at Deutsche Börse
Gregor Pottmeyer, who has been the CFO of the Deutsche Börse since 2017, will hand over his position to Jens Schulte in October. Schulte, who has been the CFO of Clearstream since 2019, will take on the role of CFO at the Deutsche Börse.
The Deutsche Börse's trading volume on cash markets saw a significant increase in the first quarter of 2022. In May, the trading volume was €152.2 billion, an increase of 33.3%. In June, the trading volume was €138 billion, an increase of 29.3% compared to the same period last year. In April, the trading volume was €188.4 billion, an increase of 58% compared to the same period last year. The average daily turnover on Xetra in March was almost double the previous year, with customers trading €9.58 billion.
The Chicago-based options and derivatives exchange CBOE Global Markets and the Intercontinental Exchange, which owns the New York Stock Exchange, have already implemented 24-hour trading. The U.S.-based technology exchange Nasdaq announced plans for 24-hour trading in March. The London Stock Exchange Group is contemplating the introduction of 24-hour trading.
As the financial industry continues to evolve, the debate surrounding 24-hour trading will undoubtedly persist, with stakeholders weighing the potential benefits against the risks.
- The Deutsche Börse's financial results displayed robust performance in the second quarter, particularly in trading and clearing, and fund services, aiding the ongoing discussion in the financial sector about the feasibility of a 24-hour trading cycle.
- Despite the advancements in technology that facilitate 24-hour trading, concerns regarding market stability, liquidity, volatility, and regulatory matters continue to linger, preventing the Deutsche Börse from fully committing to this extended trading model.
