The extension of trading hours might not become a reality anytime soon as the Securities and Exchange Board of India (Sebi), stock exchanges and brokers were yet to agree on how it would be implemented, said three officials with direct knowledge of the matter.
Markets regulator Sebi had on 4 May permitted exchanges to extend their trading hours beyond the current 3.30pm. The move was aimed at enabling the exchanges to offer equity derivatives for nearly 14 hours a day until 11.55pm. The exchanges were primed to run for the extended hours from 1 October, but this is yet to be implemented.
“We had enabled the exchanges to trade for extended hours and they were to submit proposals, including risk management framework and member consensus. There are some issues there,” Sebi chairman Ajay Tyagi said after the board meeting of the markets regulator on 12 December.
“There is not much movement on that front (extended market hours) from any side. More than the increase in volumes, it will lead to an increase in cost and operational problems,” said Prakarsh Gagdani, chief executive officer, 5Paisa Capital, a low-cost brokerage unit of IIFL Holdings Ltd. “Earlier, there were questions on how the settlement will happen and how the extended hours will be implemented. The answers were not then there and even today they are not. It was kind of a premature decision.”
The three officials cited earlier said the main issues preventing Sebi from approving the proposals were a lack of consensus among the exchanges on the duration of extended trading hours, a lack of agreement among brokers, the use of offshore resources by foreign trading members and the absence of an adequate risk management framework.
“The brokers are just not willing to come to a consensus on how long the markets should stay open,” said one of the officials cited earlier, requesting anonymity. “Some brokers said that the move does not make sense economically as the estimated volumes beyond 3.30pm will not justify the cost incurred on additional resources. Earlier, these concerns were being raised by small brokerages. Now, even the big brokerage firms hold a similar opinion.”
Foreign brokerages are also in discussion with the exchanges and Sebi to allow them to use their offshore resources.
“Foreign brokerages say that once the trading terminals in India are shut for the day, they should be allowed to use their offshore terminals to continue trading. While direct market access is available, it can be used only by clients and not by trading members,” said another official cited earlier. “Second, for trading purposes all terminals need to be registered with exchanges and the majority of offshore terminals are not registered with bourses.”
The two main exchanges did not propose similar trading hours, said a senior Sebi official. “The Sebi circular enabled exchanges to trade up to 11.55pm. However, the timings proposed by two exchanges are not same. One wants to trade for longer hours and the other for at least two-three hours less. This can create too much arbitrage,” said the Sebi official.
The National Stock Exchange of India Ltd did not respond to an emailed query sent on Thursday, while BSE Ltd said in an emailed response that it was discussing the issue with brokers.
“BSE is discussing the issue with brokers to arrive at a consensus so that the approved longer trading hours for equities derivatives can be implemented like in commodities derivatives, as most brokers have already spent money and continue to spend money for longer trading hours in commodities,” a BSE spokesperson said. “The additional segment will not add any cost for them. Hence, many brokers have expressed their willingness to bring the equities derivatives trade time in line with commodities derivatives timing.”
Commodity exchanges were allowed on 30 November to extend their trading hours. They can now open at 9am and operate for 12 hours. Prior to the extension, trading in commodities took place from 10am to 5pm.
BSE also refuted the idea that there would be issues of risk management.
“Commodities derivatives are trading for long hours in Indian exchanges, including stock exchanges. The risk management framework, therefore, has been found to be adequate for over 15 years,” BSE said in the emailed statement.