After the initial joy expressed over the move by the Securities & Exchange Board of India (Sebi) to allow the Indian stock exchanges to extend trading timings, the stakeholders are facing the reality of the situation and the verve has now faded.

With consensus almost alluding over the extension of trading hours on the bourses, the National stock Exchange (NSE) that spearheaded the proposal has held its plans in abeyance saying that any further move on the proposal will be taken only if there are unanimous views among the market participants.

The market regulator, Sebi, on October 23 gave flexibility to domestic equity bourses to offer trading facility from 9 am to 5 pm from the current trading hours of 9.55 am to 3.30 pm, an increase of two hours and twenty five minutes. This would be in line with most of the leading stock exchanges that have longer trading hours in the cash and the derivative markets.

However, on the ground, many participants seem to realise that this facility would be difficult to implement as the domestic financial markets are not really ready with the necessary infrastructure to cope with the extended timings. Ravi Narain, CEO of National Stock Exchange (NSE), said that the market intermediaries have raised genuine concerns regarding the logistical limitations for implementing the proposal.

One of the major concerns is with regards to the facility to transfer money and margins within the banking system, especially in the upmarket country. Secondly, smaller brokers face a huge limitation with their back office infrastructure. This will need to be spruced up in a large manner to meet the increased work load.

And, then there is the problem faced by the mutual funds, especially with regards to calculating their net asset values and communicating them in a way that investors get to know their status, at least in the print media. A group of CEOs from asset management companies met with Association of Mutual Funds of India (AMFI) to discuss the logistical hurdles that would arise from implementing longer trading times. “These are legitimate issues that need to be looked up on before we extend the trade timings,” said Narain on the sidelines of a securities market conference in Mumbai.

Then there are others who argue that any increase in timings should commensurate with the increase in the depth in the market. And the existing timing hours is enough to handle the current trading volume in the exchanges and any increase in time would only stretch the existing manpower and infrastructure resources of the trading members that would ultimately increase cost of operation. A recent survey conducted by Association of National Stock Exchange Members of India (ANMI), a body representing over 800 brokers across the country showed that out of the 395 members; nearly 62% were against extending trading hours on the bourses.

Initially NSE proposed extending trading hours on the domestic bourses after a section of the market argued for the same. Their reasoning for extended trading hours was that Indian market was losing out on account of market impacting news getting broken in the overseas market when our market is off and hence investors back home are not able to take advantage of those developments.

Trading on the Singapore Stock Exchange would start at around 6 am according to the Indian Standard Time and many cues in the market were lead by the moments on the SGX. The volumes on the open interest were in fact matching those on the NSE.

And then, many traders now look out for cues from the European and US markets as to how the domestic markets would react. With Indian companies expanding and setting up its business operations in the overseas markets and successfully raising funds through ADR or GDR, there are more and more possibilities of certain price sensitive information getting reported in the overseas market either through media or some other sources when the Indian markets are closed.

However, now there are only a few takers for this facility extended by the regulator.

According to veteran on the stock markets, this is a clear case of systemic lethargy on the part of the Indian broker community. Sebi chairman CB Bhave at a press conference mentioned that this was a mere facility that was offered to the exchanges and they could implement this whenever they wanted. And, therefore it will take some time before this gets implemented.

There is a school of thought that the timings for the cash market should be kept the same and timings could be extended for the derivatives segment. Globally, this is the practice that is followed. The Tokyo Stock Exchange has only five hours for the cash segment but the derivative segment is open for ten hours in a manner that captures movements of major global markets. Same is the case with the London Stock Exchange which has the derivatives segment open for a longer time than the cash segment.

“The whole logic behind extending trading hours is that our market is completely coupled and to integrate us with world markets. If that is the case we should keep open our markets for whole 24 hours instead of just extending the trade timing by two and a half hours since our markets are still closed when the trading happens in the US markets. I am not enthused by the current proposal,” said Prithvi Haldea, MD, Prime Database. In fact the derivatives segment on the New York Stock Exchange is open for 23 hours.

Exchanges and market participants who seem unenthused at the moment will have to spur this movement up and get the exchanges to trade longer. It is just a matter of time when this realisation would dawn on those who resisting the change. So may be exchanges and participants could start with the derivatives segment and then build up the infrastructure for the cash segment.

From a macro perspective, longer hours mean lower volatility also, which in fund manager’s terminology is akin to lower risk and better attractiveness. “The longer the hours the better it is,” said Gyan Mohan, executive vice-president and head investment banking, IDBI Capital. He said, “The market volatility is usually high towards the end of the trading session. People will not be rushed up with the extension of trade timings as it will help in bringing down the uncertainty. It will only help in attracting more investor’s participation and increase depth in our markets”.

However, the latest proposed timings the market argues would not help serve any purpose in allaying some of the above mentioned limitations of the current market structure. But this argument will gain momentum in coming days as the financial markets are getting increasingly integrated and major positive or negative events in Europe, the US or Asia impacting the whole global markets at the same pace and intensity whether it is an announcement of a rate change by European Central Bank (ECB) or statement on the health of the economy by the US Federal Reserve. NSE’s move in this background should be seen as a first step in getting integrated to global markets, but it came little ahead of the markets preparedness to implement it.