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Impact of NSE’s extended trading hours
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NSE recently asked its clients to get ready for derivatives trading till 11.55 pm from October. Reports are that NSE has written to SEBI seeking approval to extend trading time for derivatives following market regulator’s circular in early May’18 which allowed the exchanges to extend their timings subject to availability of manpower, system capabilities, surveillance systems and proper framework for risk management and settlement process.

If approved, this would entail trading at the exchange in 2 shifts from 9.15 am to 3.30 pm (the current timings) and 5 pm-11.55 pm, increasing the total trading time close to 13 hours. As we highlighted the pros and cons of extended trading sessions in our earlier post, we would focus on the impact this step would have on the various market participants.

  •  The investors would have the opportunity to take positions in the market as and when the news arrives. Right now, many of the corporate results are released after the market closing hours and hence change in prices take place on the next trading day. US and EU economic data, central bank (Fed and ECB) Minutes of the meetings are released after 5 pm IST. This data carries a lot of significance and has a huge impact on the markets worldwide but right now India lacks behind with respect to reaction on this data. With new timings, the price reaction would be seen immediately.

 

Timings for Global Markets

 

Following are the current timings for various stock exchanges globally. As we can see, US and European stock exchange trade timings differ a lot from NSE trade timings. Thus new timings would somewhat align the Indian market segment with the world.

 

Country

Stock Exchange

Market trade timings (as per IST)

US

Dow 30

7 pm - 1.30 am

UK

FTSE 100

12.30 pm - 9 pm

Germany

Frankfurt Stock Exchange - Deutsche Borse

1.30 pm - 12.30 am

Japan

Nikkei

5.30 am – 8 am & 9 am – 11.30 am

Singapore

SGX Nifty

6.30 am – 11.30 pm

China

Shanghai Stock Exchange

7 am – 9.30 am & 10.30 am - 12.30 pm

 

Liquidity, Volatility and spreads

 

Traders might find less liquidity in the market which could increase the risk of stop losses not being triggered for huge trades as prices may skip the stop loss levels. The spreads between bid and ask would climb and lead to upsurge in volatility levels. Derivatives trading on mid cap and small cap stocks would be even more impulsive, making them more uncertain. Impact on large caps would be comparatively less.

 

Volume might increase as people who cannot trade on the 9 am - 3.30 pm slot can trade in the evening shift. But investors may develop health issues by sitting for long hours.

Another concern that would arise for the investors is to how effectively the equity derivative market would work in the absence of a functioning cash market, if NSE goes through with only derivative trading in the second shift. 

  •  For brokers, this means more work in terms of manpower, system capabilities, order executions, market analysis services and relationship management with their clients. Employees would have to be called in two shifts and the work management processes would need to be effectively administered.Though brokers and sub brokers feel that the increased work would increase the brokerage but it may not be enough to compensate the increased operational costs for them. Brokers are protesting against this decision and seem content with the current market opening timings.
  •  For SEBI, it would increase the amount of work with regards to regulatory timings and hence the costs, part of which would be passed on to the brokers as well.
  •  NSE would have the surplus work of managing the additional surveillance measures, physical settlements and increased lot size for securities. NSE would see increase in revenue along with rise in employee costs. It would have to find a way to align itself with the trading sessions of BSE that now runs parallel.
  •  Vast amount of work would grow for depository participants like NSDL and CDSL who would have to complete the settlement process for the securities in T+2 days (trading plus 2 days). There are media reports that the settlement price would be the closing price at 3.30 pm and not 11.55 pm, if that is the case then the current settlement process would continue and authorities would experience change only in the number of trades requiring to be settled.

 

It would be interesting to see how the markets react upon SEBI’s approval to NSE and what influence does it have on the market players.

 

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