Mumbai: Brokers, bankers, fund managers and day traders in Mumbai have reset their alarm clocks to wake up an hour early from Monday to Friday. Some breakfasts, many morning walks and a few school drops will be sacrificed as the country’s two largest stock exchanges start trading at 9am beginning on Monday.
An entire generation of market intermediaries used to the 9.55am-3.30pm slot will have to make some painful adjustments in their personal and professional lives. An extra hour of work a day means almost an extra day a week—which could even drive some career switches.
Also See 9am trading... (Illustration)
These so-called human costs have been the single largest rallying point for critics of the move, including the broker lobbies—the Association of National Exchanges Members of India, or ANMI, and the BSE (Bombay Stock Exchange) Brokers’ Forum.
Though they have been focusing on infrastructure issues in public, many agree in private that the real issues are different.
Although the market regulator, the Securities and Exchange Board of India, or Sebi, in October allowed the exchanges to set their own timings between 9am and 5pm, the bourses had not extended trading beyond 3.30pm.
The National Stock Exchange, or NSE, has all along maintained that an extension of trading hours in the evening will be difficult because the banking infrastructure is yet to be in place to handle real-time payments and settlements beyond 4pm.
Those who are opposing the plan to extend trading hours in the morning have also argued that an early start could pose problems if market volatility increases.
The stock market payments and settlements are enabled through the real-time-gross-settlement or, RTGS, system of banks, and an earlier opening of stock markets will require banks to switch on the system 1 hour in advance.
Banks have so far been opening the RTGS platform at 9am while the markets were opening at 9:55am. The gap is often used by brokers to settle their margin payments. Now, this window will be closed. It is not clear as yet how the banks will deal with this.
A March 2008 Sebi discussion paper had said that the extension of trading hours would help align the Indian markets with global peers, some of which keep trading open the entire day.
Though extended trading hours could theoretically mean higher volume and higher income from fees, brokers are not too excited about the prospect. Some even fear loss of depth in the market as trading may get thinner, which may in turn lead to an erosion of volume.
In November 2009, BSE recorded trades worth Rs1.05 trillion and the NSE’s turnover was Rs3.24 trillion in the cash segment. The derivatives trading volume for the month stood at Rs16.61 trillion, all on NSE.
Many brokers Mint spoke to in the past week say volumes may not see any significant change, at least initially, despite the one extra hour of trading.
With six-and-a-half hours, from Monday, the Indian cash market will have the second longest trading sessions in the eastern part of the world, next only to the Australian Securities Exchange that opens at 7am and closes at 9.30pm. Some global markets trade even up to 23 hours.
A few Asian markets, such as Taiwan and Korea, close trading before the Indian market opens. The US market opens after the Indian market closes.
As a result, Indian shares run the risk of opening trading with a sharp difference in prices compared with the previous closing—technically known as “gap up” and “gap down” opening—when significant developments affect global markets.
Longer trading hours in India could mitigate this risk to some extent.
Indian markets have gone through several changes in timings in the past. Through the late 1980s trading used to be two-and-a-half hours in India, from 12 noon to 2.30pm. In 1990-91, trading hours were extended by half-an-hour from 12 noon to 3pm but reduced again to 12 noon-2pm as volumes shot up so much that market intermediaries found it difficult to handle the increasing paperwork.
In 1994, NSE started trading in the cash segment and in 1997 the trading hours were extended to 9.55am-3.30pm by both the exchanges.
Despite the protests, it may not be difficult for Indian exchanges to adopt longer trading hours for equities and derivatives.
The infrastructure is largely in place and they already handle trading between 9am and 5pm in currency and interest rate derivatives. Commodity exchanges trade between 8am and11.30pm.
Illustration by Jayachandran/Mint