As the Indian capital market gears up for the entry of a new stock exchange after nearly two decades, the street is abuzz with talks of whether the sensitive issue of trading hours will also be revisited. While stock exchanges officially do not want to comment on this issue, brokers say that a move to extend the closing time could be in the offing.
According to market participants, exchange officials are mulling over the likelihood of extending the trade timings to revive the trading activity amid a sluggish market plagued by lower interest from retail investors and overseas investors’ concerns over the implications of the tax anti-avoidance norms.
Given this backdrop and with competition heating up with the expected launch of MCX-SX in the next couple of months, exchanges may be forced to introduce extended trading hours. In a circular issued in October 2009, the Securities and Exchange Board of India (Sebi) allowed exchanges to set trading hours between 9am and 5pm.
?If one exchange extends the trading hours till 5 pm, others would be forced to adopt to the changed timings to offer the same trading options to traders,? says T S Harihar, head of derivatives, ICICI Securities.
Brokers fear that a repeat of what happened in December 2009 might further create a dent in their margins. They say that Indian exchanges are not known to act in unison and the attempts of any one exchange to get the first mover advantage might impact the whole broking industry.
On December 16, 2009, BSE announced its decision to open the market 10 minutes (9.45 am) before the then normal trading hours. The next day saw NSE coming out with its own announcement that it will start trading at 9 am. Within minutes, BSE also came out with a similar circular. The opposition from the broker lobby, however, saw the changed market timings being implemented only on January 4, 2010.
Another theory doing the rounds is that since the increased competition could lead to newer products being launched, exchanges might look at pushing their product through extended market timings, too. For instance, brokers say that BSE, which is looking at bringing back the erstwhile popular product ‘badla’, might be interested in longer trading hours for pushing it among traders.
?We have always gone by market feedback and the consensus in the market on timings. We will continue to be directed by the response from market participants and agreement in the market community,? said an NSE spokesperson.
Meanwhile, emails sent to BSE and MCX-SX remained unanswered till the time of going to press. Market experts, however, also pointed out that extended trading hours may not necessarily improve the trading activity in terms of liquidity and market depth. Since January 2010, the combined monthly average daily turnover for BSE and NSE in the cash segment has dropped by more than 50% to R11,330 crore as of July 23.
According to Harihar, a similar extension of trading hours since January 2010 has, in fact, seen the trading volumes in the cash segment dwindle to multi-year lows. ?Trading activity is generally concentrated towards the beginning and concluding hours of a trading session while the middle period doesn’t contribute substantially to the overall action,? he added.
While the volumes in the derivatives have grown by 75% to R1.37 lakh crore during the period, a quarter of this activity is accounted by growth in the BSE derivatives platform which offers the liquidity enhancement scheme (LES).
Siddarth Bhamre, head of derivatives at Angel Broking, says the market volumes are a function of the underlying market trend and investors sentiment, than the number of trading hours. ?For any exchange to gain market share, its footing in the cash market plays an important role. A strong-hold in the underlying market, which could bolster the derivatives segment, is a bigger differentiation factor than prolonged trading hours,? he says.
