The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

By Neil Unmack

LONDON, July 21 (Reuters Breakingviews) - Fancy a leveraged ETF with your evening cocoa? The London Stock Exchange Group LSEG.L is the latest bourse trying to open up trading through the night. It’s a logical move in a world increasingly being driven by retail investors and digital assets. While there are risks, the peril of not acting outweighs them.

The $24 trillion market for listed equities is arguably a laggard. Stocks and shares have historically been traded on exchanges that open in the morning and shut in time for transactions to be priced and settled in the evening. London’s main bourse, for example, shuts at 16:30. Yet other asset classes, particularly those that are globally followed and affected by international macro-economic factors, such as commodities or currencies, are traded through the night across time zones.

Yet shifts within the equities world make the status quo harder to sustain. One is the boom in retail trading, where punters are as likely to want to buy and sell shares after a night out as they are at their desk. SpaceX SPCX.O reserved 20% of its record stock offering for retail investors, for example. Many retail platforms like Robinhood Markets HOOD.O already allow a kind of off-exchange continuous trading. The second big factor is the advent of digital and crypto assets such as bitcoin, which are also global, continuous markets. Over time, more shares may be digitally traded.

Small wonder then many large exchanges are pushing ahead with continuous trading for various products, including large U.S. players such as Nasdaq NDAQ.O and the New York Stock Exchange. But challenges remain. One is that the equity markets aren’t necessarily designed to be open all day: securities may not be cleared, and companies are used to dropping results or acquisitions before the market opens, giving investors time to digest the news.

A second factor is liquidity. Many institutional investors may switch off overnight, or pay less attention to shares outside their home region. The result could be more one-sided markets with prices set by less sophisticated investors, fuelling volatility. Even the vast forex and commodity markets see peaks in daily trading, typically when markets open.

Given the challenges, it’s logical for the likes of the London Stock Exchange to tread carefully. Its plan: a new venue for night-time trading is focused just on the most liquid exchange-traded products, such as baskets of stocks or widely followed single names. And traders will seek quotes from brokers as in over the counter markets, rather than rely on just a central order book. Over time, that could evolve into a system for trading traditional shares.

There are bigger risks, arguably, from doing nothing. The U.S. market accounts for nearly half of all listed share trading. As it moves closer to a 24-hour system, ever more investor eyes and wallets will likely go stateside. That may ultimately lead to less liquidity, and fewer incentives for companies to list in Europe and less active markets. Equally, the advent of digital assets could lead to more fragmented markets, hurting traditional bourses. To avoid getting left behind, everyone may need to sleep a little less.

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CONTEXT NEWS

The London Stock Exchange said on July 21 it would launch a new venue for buying and selling securities through the night, enabling near-continuous trading for certain securities.

The venue, which is separate to the main UK bourse, will operate at night between 5:00 p.m. and 7:50 a.m., with a pause between 6:30 p.m. and 7:00 p.m. It will initially be used for exchange traded-products, securities tied to individual stocks or baskets of shares such as indexes.