A meeting of the stock market regulator SEBI on Monday will likely consider a proposal to extend trading hours to either 5 pm, 5.30 pm or even 7.30 pm.

The proposal, to be considered by the Secondary Market Advisory Committee (SMAC), is intended to align trading hours with some of the premier global exchanges such as those in the US, the UK, France and Singapore.

Stock exchanges are evidently keen to extend trading hours to the maximum extent possible, but brokers, especially small ones, are very anxious.

SEBI had in 2009 allowed exchanges to extend trading hours till 5 pm. But due to stiff resistance from the broking fraternity, exchanges could not extend the trading hours beyond 3.30 pm. Brokers, mainly small brokers, feel that longer trading hours will increase their operational cost.

Losing out to SGX

One of the reasons that bourses cite in favour of extending trading hours is that they are losing trading volumes to international bourses such as Singapore and Dubai owing to the time factor. They feel that an extension will help attract trading volumes from international investors.

However, the belief that extended trading hours will increase trading volumes appears misplaced, given the trading volumes at the international stock exchanges. Both the BSE (INX) and the NSE (IFSC) have virtually round-the-clock trading facilities at GIFT city in Gujarat.

However, even six months after the launch, trading volumes at these bourses are quite dismal. Just 52 Nifty contracts and two Bank Nifty contracts were traded on the NSE till 4.30 pm on Friday. The BSE’s INX platform is, however, experiencing some interest, but owing to regulatory issues, trading volumes are yet to pick up significantly.

Transaction cost, a drag

Even if the trading time is extended, it is unlikely that foreign investors trading in rupee or Nifty futures on overseas exchanges will shift to domestic platforms. These investors prefer to trade overseas owing to low transaction costs and the ease of doing business in those jurisdictions.

The current trading pattern at the bourses suggests that there is a concentration of volumes at the start (fresh order) and at closing hours (squaring-off positions). On most occasions, the mid-session (11.30 am to 2.30 pm) is generally dull and any movement is largely news-driven.

There are also concerns that extending trading hours will lead to an increase in day trading, which is not good for retail investors.

Trial basis

Instead of giving a blanket clearance, SEBI can consider asking the bourses to extend trading hours on a trial basis, say, for one or two months. If there is a significant volume jump, the new hours can be normalised. Else, reverting to the status quo would be the best option.

Brokers reckon that even if SEBI allows exchanges to extend the trading hours till 5.30 pm or 7.30 pm, it can consider giving a two-hour break, say, between 11.30 am and 1.30 pm to ease the physical and mental strain.