Extended trading hours: It’s the bourses’ call

KS Badri Narayanan Chennai | Updated on May 11, 2018 Published on May 11, 2018

Existing volumes may get dispersed over longer trading hours

As with commodity trading, investors in equities will also soon enjoy long trading hours. Recently, market regulator SEBI gave its nod to the bourses to extend their regular trading sessions in the derivatives segment to 11.55 pm, with effect from October. Currently, the stock exchanges wind up their session at 3.30 pm.

To extend their trading hours, the exchanges will need approval from the regulator, the circular added. The bourses will need to present a detailed proposal to the Securities and Exchange Board of India including framework for risk management, settlement process, monitoring of positions, availability of manpower, system capability, and surveillance systems, among others, before approval is granted.

Though the exchanges would be happy to remain open until midnight, broking houses are hesitant. They fear this move will increase their cost of operations amid apprehension of poor trading volumes.

The regulator’s decision on trading hours may bring Indian markets in line with global markets but the worry is that the existing volumes may get dispersed over the longer trading hours.

Contrarian stand

There’s also criticism that, on the one hand, SEBI wants to extend trading hours on derivatives, but on the other, it wants to nudge retail investors out of trading in the derivative markets.

Recently, it took several initiatives to push retail investors away from derivatives trading into the cash segment, as the ratio of equity derivative turnover to cash market turnover rose more than 10 times to 15.59 times in the 12 years to March 2017. The initiatives include the revision of F&O entry criteria, new guidelines for physical settlement and increased margins.

Even currently, the bulk of the trading activity is concentrated only in the opening and closing hours. Extended trading hours may further cause lower trading depth due to scattered and uneven trading patterns through the day.

Longer trading hours will also increase the back office work for brokerages, putting pressure on their already overloaded staff members.

Given this scenario, one has to wait and see how the exchanges are going to pursue this. Will they introduce all securities in the equity derivatives market or only allow index trading during the evening-to-midnight session, is a question.

Sans individual stocks

Some marketmen feel the extended trading hours should be restricted to index derivatives alone and should not cover individual stocks, as such a step may be vulnerable to abuse by unscrupulous elements. Adjusting to a gap-up or gap-down opening the next day in the traditional cash segment, will also be a challenging task for some. Retail investors who are active in derivatives, may have to turn more vigilant, at times even sacrificing their social outings in the evenings.

Published on May 11, 2018

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