The Securities and Exchange Board of India (SEBI) has allowed stock exchanges to extend trading time by almost two-and-a-half hours, permitting them to operate between 9 am and 5 pm. This aligns the domestic markets with those in other Asian countries and Europe. This is good news for investors.
SEBI has decided to permit stock exchanges to set their trading hours subject to the condition that the trading hours are between 9 am and 5 pm and the exchange has in place risk management systems and infrastructure.
This allows domestic players to take advantage of global developments. Currently, the cash and equity derivatives markets are open from 9.55 am to 3.30 pm. The currency derivatives market is open from 9 am to 5 pm, while the commodity derivatives market is open from 8 am to 11.30 pm. An increase in trading hours means higher volumes and profitability for brokers.
In India trading took place for five and a half hours in a single trading session. In many of the international exchanges, trading in derivatives is conducted between 10 and 15 hours, and in a few cases, it goes up to 24 hours.
It was important to align the domestic markets to facilitate assimilation of any developments in the global markets.
The domestic markets will be more competitive and in sync with the European and other Asian markets with the extension in timings. It will bring about greater integration with those markets. The NSE had requested the regulator to extend the trading hours.
However, SEBI’s permission to the stock exchanges to extend their trading hours has received mixed reactions from the trading community. According to some, an extension in market timings would mean added stress. The extended timing would see expenses also increasing. Keeping the offices open for longer means more expenses.
According to some analysts , the move benefits the larger players such as foreign institutional investors (FIIs) and the exchanges themselves , as the volumes would increase with stretched trading hours. FIIs, especially the London-based , stand to benefit the most as they can hedge risks best as they have better global information in hand. Day traders would have more hours. Exchanges would profit as increased trading hours will mean increased volumes. Institutional investors will benefit as they have huge positions in Asian stocks.
This move may not add any value to the fund managers’ job, but it does increase the work of the back-office of fund houses. Back-office employees would calculate the NAVs after 4 pm, but now this process would be delayed by one or two hours. If the reporting of NAV stretches till late it would be difficult to provide NAVs the next day.
Early opening of the markets will require the trading members/clients to bring in additional capital for margining /collateral purposes. This may not be always possible as members will not have access to banks and financial institutions very early or very late in the day. If the timings of operations of clearing of banks do not coincide with the extended trading time of the stock markets, banking hours correspondingly will have to be extended.
Extension of trading hours may put pressure on infrastructure of the exchanges, as well as of the market intermediaries . Broking firms may have to incur additional operating costs. Moreover, in order to obligate the margin /collateral requirements of their investors, the banks/financial institutions may also need to keep their offices open for the extended duration.
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