EXPLAINER- Longer market hours- Gains & risks

EXPLAINER: Longer market hours: Gains & risks

By Siddhant Mishra

At a recent pre-Budget roundtable, Ashish Chauhan, MD & CEO of the National Stock Exchange (NSE), batted for longer trading hours in the Indian markets. The Securities and Exchange Board of India (Sebi) has left the final decision to exchanges. Siddhant Mishra takes a look at the implications of longer hours for the stock markets

At a recent roundtable, NSE MD & CEO Ashish Chauhan urged industry bodies to back the proposal, saying that jurisdictions like Singapore have benefited by using prices in Indian markets to trade. In contrast, India, despite being a developing country, has resisted longer hours.

Longer hours would enable mutual funds (MFs), banks and insurance companies that have large equity holdings to participate in hedging; the move will also give them more liquidity, Chauhan had said at the roundtable. He was addressing representatives of the Association of National Exchanges Members of India or ANMI, the Bombay Stock Exchange Brokers’ Forum, and the Commodity Participants Association of India.

Proponents say…

Longer trading hours will allow for a more manageable overnight risk. Retail players mostly opt for intra-day settling of trades, because of which they face overnight risk as developments in geographies that work after India’s working hours can have a significant impact and make trade more costly. With longer hours, participants can price in early developments in some Western markets.

No evidence, say some…

An article on motilaloswal.com says empirical evidence shows the 2010 move to extend timings by an hour hasn’t led to any perceptible increase in volumes. It also says that an extension won’t likely help in the competition with the Singapore and Dubai bourses, as many other factors are at play besides trading hours. For instance, traders don’t have to pay any securities transaction tax while trading in the SGX, unlike the case in Indian markets.

Trading hours in India & abroad

In India, the regular trading session opens at 9.15 am and functions till 3.30 pm. The derivatives market also remains open during the same time, while the Securities Lending and Borrowing market opens at 9.15 am but functions till 5 pm. Only the commodity derivatives market remains open from 9 am to 11.30 pm.

The New York Stock Exchange functions from 9.30 am to 4 pm (EST), for 6.5 hours. The Shanghai Composite is open from 9.30 am to 11.30 am, and then from 1 pm to 3 pm. The Tokyo Stock Exchange functions from 9 am to 11.30 am, and then from 12 pm to 3 pm. Singapore’s SGX is open from 9 am to 5 pm, with an hour’s break.

The London Stock Exchange operates from 8 am to 4.30 pm—8.5 hours—while Frankfurt trades from 8 am to 10 pm with no breaks, a total of 14 hours. The Euronext Paris, too, is active for 8.5 hours from 9 am to 5.30 pm.

What could be the likely impact of an extension?

Some overseas markets see longer trading hours, and implementation of the same in India would bring it on a par with them. Would this move have a material impact on the markets? Market analyst Ambareesh Baliga says any extension would consequently lead to an increase in volumes, but won’t lead to an increase in costs as the extension will likely be by a couple of hours.

“Most likely, the futures and options (F&O) segment will start with the longer hours, with the cash segment following later. It won’t be extended for the overall markets immediately,” he said. Overseas markets that function for longer hours usually have shifts for traders, given the nature of the job. However, an extension of just a couple of hours may not introduce multiple shifts in India.

Higher pressure on brokers and traders to execute trades, in tandem with the increased hours, could lead to an increase in errors in the absence of shifts. These are known as ‘fat finger errors’—which are not malicious but could have a grave impact on trades. This pertains to cases where wrong values are entered into the system due to human errors. Insurance firms offer a product known as the Errors & Omission insurance to protect traders against such errors.