The extended trading hours and its implications

The opening bell in the two top stock exchanges in India, the NSE and the BSE, will ring 55 minutes earlier, at 9 am from January 4. This is an attempt to boost trading volumes and correlate better with other Asian bourses. The close of trade timings is retained at 3.30 pm.

There has been large scale apprehension about the change of timing. While large brokers can quickly adapt to the additional trading hours, it will not be so easy for smaller stakeholders. The decision to postpone the implementation of the revised timings to Jan 4 gives the smaller players the much-needed breather and time to adjust. But are the brokers ready? Blame it on the human nature to be averse to changes or real operational issues, marketmen may not be quite pleased with the alteration. While the equity markets are quite robust, the banking system is not geared up to handle the pressure. It needs to make available margin money to traders and customers early to allow trading to begin at 9 am. There is also the stress factor that gets added.

What is SEBI’s rationale?

The Sebi’s rationale for extension in trade timings is rooted in the fact that securities market should be aligned with the currency markets. It is also a global practice that all large markets open by 9 am. Asian markets especially Japan, Korea, Taiwan, Singapore and Hong Kong open for trading much ahead of the Indian time. So the associated fear is that some of the trade might shift to Singapore and Hong Kong exchanges in the long run if Indian markets do not open early. However since the US, the UK, and Hong Kong markets are highly liquid compared with Indian markets, the rationale for the Indian exchanges to copy the timings doesn’t hold teeth.

Also extended hours will mean changing the working processes, more overheads, multiple shifts and overtime wages for the employees. Infrastructure hurdles can be overcome if everyone – the regulators, the exchanges, the banking system, and the intermediaries such as brokerages and traders – decide to scale up with better technology and processes.

So, is the move good for India?

The whole point of having an exchange is to let people convert information into money. The longer the trading hours, the less the pile-up of information that cannot be acted on. Given the international aspirations that India has, it must go for such realignments. Although there is no linear co-relation between longer trading duration and higher volumes, it could be the case in future and help businesses grow and be receptive to the international changes. It might be a good move for the development and synchronisation of the currency and capital markets in the long term. The cost related to process changes although may seem cumbersome, but similar changes have taken place in the past. This is a picture of the dynamic environment that we are operating in.