Mumbai: The extension of trading hours at Indian stock exchanges has started boosting trading volumes, disproving concerns among brokers of a possible loss in market depth.
Turnover on the Bombay Stock Exchange (BSE), Asia’s oldest, and its younger rival National Stock Exchange (NSE) reached a six-month high in January. Average daily turnover in the cash segment of both exchanges surged 29% to Rs23,975.11 crore in January over December, helped by the 55-minute extension of trading.
The Securities and Exchange Board of India, the market regulator, allowed exchanges to extend trading hours in October in an effort to boost volumes and help in better price discovery by aligning Indian markets with global peers, many of which had longer trading hours.
Graphic: Yogesh Kumar / Mint
Higher volumes boost fees and commission income for both exchanges and brokers.
While NSE posted a 28% increase in daily average cash turnover at Rs17,812.77 crore, BSE clocked a 31.9% surge in turnover at Rs6,162.34 crore in January over December.
To be sure, trading volume in December is traditionally low with foreign institutional investors, the main driver of Indian equity markets, taking a break for Christmas.
Still, the January volume was 11.6% higher than November and the highest since August.
The exchanges started opening for trading at 9am instead of 9.55am on 4 January amid widespread protests from the broking community, including the Association of National Exchange Members of India (Anmi) and the BSE Brokers’ Association.
It took time for volumes to pick up, and it was only in the second half of January that trading turnover shot up, riding high intraday volatility.
“If there is high volatility, the extended hours lead to increase in volumes. But if the volatility is low, then the extended hours could be a pain in the neck,” said Manish Shah, associate director, Motilal Oswal Financial Services Ltd, a listed brokerage.
Longer trading hours help in transmitting price information faster into trading patterns whenever market-related news breaks. This, in turn, helps in better price discovery.
When the exchanges advanced their opening, many brokers had feared a loss of depth in the markets due to thinner trading, but their concerns seem to have been misplaced.
NSE saw a 15.54% rise in January cash turnover at Rs3.38 trillion compared with December. BSE’s cash turnover rose 19.37% to Rs1.17 trillion, claiming a 26% market share, up from 25% in 2009.
Anmi president E.M.C. Palaniappan said brokers are coping with the extended hours and although some are still unhappy, they are learning to live with a longer day at work.
“We did not expect volumes to increase dramatically because of the extension, but they have gone up,” he said.
Some experts said longer trading hours in the morning could pose problems if market volatility increases.
Payments and settlements in stock market transactions are enabled through the real-time-gross-settlement (RTGS) system of banks.
To avoid glitches in margin related payments on days of high volatility, early openings of stock markets would require banks to switch on the system an hour in advance, or at 8am.
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 is closed.
An official at one of the exchanges, who did not want to be named, said that if banks cooperate by opening the RTGS platform earlier, the volumes could be even higher and handling trades could be smoother. In January, the two exchanges collectively traded shares worth Rs4.55 trillion.
The derivatives trading volume for the month stood at Rs14.9 trillion, all on NSE.
With six-and-a-half hours of trading, the Indian cash market now has the second longest trading sessions in the eastern part of the world, next only to the Australian Securities Exchange.
After Indian exchanges, the Singapore Exchange, too, extended trading hours to meet growing demand for Asian equity derivatives globally, and to compete with the imminent start of trading on the rival Singapore Mercantile Exchange, Asia’s newest derivatives exchange.