Mumbai: In a bid to align the Indian equity markets with other Asian and European peers, capital market regulator Securities and Exchange Board of India (Sebi) on Friday allowed the stock exchanges to trade about an extra two-and-a-half hours. The exchanges can conduct trading between 9am and 5pm in both cash and derivatives segments against the current practice of 9.55am to 3.30pm.
An extension of trading hours will enable the domestic market to take advantage of movements in international exchanges.
Currently, some Asian markets such as Japan, Taiwan and Korea close trading before the Indian market opens. Similarly, the US market opens after the Indian market closes.
As a result of this, Indian shares run the risk of opening the trade with a sharp difference in prices compared with the previous closing—technically known as “gap up” and “gap down” opening—when significant economic developments impact global markets.
Also, Nifty futures, an index derivative of the National Stock Exchange (NSE), are traded on the Singapore Stock Exchange (SGX), where the product is listed. Trading on SGX now starts at least three-and-a-half hours before NSE due to the time difference between India and Singapore. As a result of this, a substantial portion of the Nifty futures trade has shifted to Singapore.
Nine-to-five: The Securities and Exchange Board of India headquarters in Mumbai. The capital market regulator on Friday allowed the stock exchanges to trade about an extra two-and-a-half hours. Abhijit Bhatlekar / Mint
In March, Sebi had put out a discussion paper on its website proposing extension of trading hours to help exchanges better price discovery and increase volumes of trade.
An extension of trading hours will make markets more efficient and attract trading interest, Sebi had said.
Some global exchanges have much longer trading hours for the futures segment, extending even up to 23 hours.
“The extension in trading hours will take our markets nearer to Singapore and Europe. This will reduce the offshoring of our markets, as a large amount of settlement in NSE futures are done on SGX,” said Anup Bagchi, executive director of ICICI Securities Ltd, the broking arm of India’s largest private bank ICICI Bank Ltd.
A spokesperson of NSE, which enjoys at least three-fourth market share in stock trading in India, said: “This is in alignment with currency futures market, and we should be able to start very soon.”
Ashishkumar Chauhan, deputy CEO of Asia’s oldest bourse, the 134-year-old Bombay Stock Exchange (BSE), too, welcomed the Sebi directive.
None of the exchanges, however, specified any time frame for trade extension.
Besides stocks, NSE also offers its platform for trading in currency and interest rate futures. BSE has entered into an agreement with United Stock Exchange to offer these products, but they have not yet taken off.
Currently, currency and interest rate futures are traded between 9am and 5pm and commodities exchanges run between 8am and 11:30pm. This suggests that the exchanges have the infrastructure to handle longer trading hours. Indeed, the operating expenses will go up for extended trading hours but this will be offset by the growth in volumes.
“The move is good, but it should have been introduced with a short break in the afternoon. Most other Asian markets which trade for longer hours provide a lunch break. If the exchanges extend the trading hours, the brokers will have to keep two shifts for dealers,” said V.K. Sharma, head of research, Anagram Stock Broking Ltd.
The real-time gross settlement, or RTGS, facility of banks that run the payments system is key to the success of extended trading hours of exchanges.
Sebi discussed the issue with all market participants, including banks, before giving the go ahead to exchanges.
On an earlier occasion, NSE had requested Sebi to start index futures contracts trading at 8am, instead of 9.55am. The regulator, however, had cautioned that an extension of trading hours would raise risk-management concerns and a potential need for higher margins.
E.M.C. Palaniappan, president of the Association of National Exchange Members of India, a brokers’ lobby, said: “NSE may start this with Nifty futures and extend to other segments.” NSE has the monopoly in derivatives trading.
The extension of trading hours alone may not drive the volume of Nifty futures back to NSE as “margin is much lower in SGX”, said Arun Kejriwal, director, Kejriwal Research and Investment Services Ltd, a stock advisory firm. While NSE margin on Nifty futures is 15%, the margin requirement of trading of such futures on SGX is 1-1.5%.
N. Sundaresha Subramanian contributed to this story.