Last week, the Securities and Exchange Board of India (Sebi) allowed stock exchanges to extend trading hours. The long-awaited approval illustrates everything that is wrong with the regulator’s decision-making process.
It was about a year ago that the National Stock Exchange (NSE) had approached Sebi to advance trading hours for its flagship Nifty derivative contracts. Sebi responded by putting out a discussion paper in mid-March this year, inviting public comments and feedback on the issue. The final decision has come seven months after that, or almost a year after market participants felt the need to extend trading hours.
NSE was considering the move based on market feedback that an earlier opening (proposed at 8am) would curtail a loss of market share to the Singapore Exchange (SGX)—a dollar-denominated Nifty futures contract is listed on SGX. Since the exchange opens for trading at 6.30am Indian Standard Time, the SGX Nifty contract prices in all the new information after the Indian market’s close at 3.30pm the previous day. Some Indian traders who started their day early participated on SGX as well to get an edge over other traders who would start trading only at 9.55am, when NSE opens for trading.
Trading in SGX got a boost in October 2007, when Sebi banned the issue of participatory notes linked to equity derivatives. Investors found the SGX Nifty contract to be a good alternative to take positions on the Indian market and, as a result, volumes on the contract jumped by 70 times within nine months of the ban participatory notes. When the ban was reversed in October 2008, a large part of the volumes shifted back. Both volumes and open interest have fallen by 65% from their peak in mid-2007.
Evidently, an increase in trading hours would have been much more beneficial to NSE a year ago, when it had sought the regulator’s approval.
Of course, Sebi also needs to look into issues such as risk management and infrastructural issues before approving an extension in trading hours, so some delay is understandable.
But even after taking a year, Sebi’s final pronouncement has received adverse comments from market participants, especially in relation to infrastructural problems in extending the trading cycle.
What started out as an attempt to meet the market’s needs seems to have ended as a nuisance. Sebi needs to give more thought to its decisions, while taking less time.
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