All about the extension of stock market trading timeMay 31, 2018(12:57)
SEBI’s nod for extended market hours for derivatives has been the talk for quite some time now. Reportedly, from October 1st 2018, the Indian stock market will remain open for the trade of derivative contracts along with other segments of securities till 11:55 pm.
The trading hours' extension beyond the current existing market hours is likely to be in the favor of retail investors to hedge their risks arising out of big news which comes out post market hours. This will also oblige foreign investors operating out of regions like Europe and the US. On the other hand, the domestic investors too can take contra bets and positions should there be any important news coming out after the current market hours which may have a potential impact on their already existing positions.
SEBI, the stock market watchdog, in an announcement a few weeks ago allowed the domestic exchanges to extend trading till 11.55pm. So far, the market timings in India have been 9:00 am to 3:30 pm for derivatives segments ever since derivatives trading started way back in the year 2000. However, most exchanges globally work for as many hours as the Indian exchanges. Thus, in an electronic world where money moves around and information transmits in a jiffy, complicated issues like timing overlap is negated.
This move mainly aims at attracting investors dealing in Indian derivative products on overseas exchanges like in Dubai and Singapore. It is expected to be helpful in fine-tuning the Indian equity markets with the global commodity and international equity markets. However, in a meeting held on Friday, 25th May, 2018, depository participants have expressed their discomfort on the time extension while discussing various aspects of trading single stock derivatives.
Interestingly, SEBI had earlier extended the trading hours up to 5 pm for the cash segment. However, none of the exchanges opted the extended hours on the account of reluctance and resistance from small brokers worried about the increase fixed costs despite a potential rise in trading volumes which could result from the extended hours.
We feel that the introduction of the extended hours is a positive development in itself and will bring the Indian equity market in line with the international markets and with the digitalized market management systems, transition issues for brokers seem negligible. On the other hand, fixed costs arising from overheads like hiring extra manpower, extra electricity costs, etc. could shoot up as the brokers will need to keep their offices open well beyond the newly suggested timings for crunching post market data for the next day’s trade. This could weigh heavily on the near-term profitability of brokers, particularly smaller players who operate within limited means and with shrinking margins on the brokerage front.
In our view, this move by SEBI seems like a mature decision which provides traders with an opportunity to protect their positions and not depriving them of the opportunity to hedge. However, commenting on whether the volumes will rise significantly or not, we feel it will be important to see whether the institutional investors, who will play a major role in determining the future of this decision welcome this move or consider this as a damp squib as there is a clear possibility of the overall market depth in low liquidity futures and options as volumes may get strewn and divided across 15 hours instead of 6 hours. Even now, most of the trading activity is concentrated to the first hour and the last hour in trade. Extended trading hours may further lead to lower trading depth due to scattered and jagged trading patterns during the day. Overall profitability can be ascertained only once the trading community welcomes this move and attracts more turnovers on the exchanges.