Sucheta Dalal :Extension of trading hours by BSE & NSE
Sucheta Dalal

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Extension of trading hours by BSE & NSE   

December 18, 2009

The Plot:

SEBI announced that equity and derivatives markets may remain open from 9am to 5pm. Opinion polls were conducted and it was found that the majority was against extending trading hours. The noise stopped. Suddenly, out of nowhere, BSE announced that it would start trading from 9.45am. In the game of one-upmanship, NSE declared as a counter-measure that it would start trading from 9am. BSE then announced that it also has no option but to start trading from 9am. The date was set as 18 December 2009. Afterwards the date was postponed to 4 Jan 2010 to compassionately give enough time to brokers to prepare themselves.

This story sounds like the Headley-Rana plot in a wannabe thriller. All the parties seem to have acted in connivance and played to their respective galleries. The next part of the plot would unfold with MCX starting its exchange and as a USP, announcing that it would trade from 9am to 5pm. BSE and NSE would follow suit, saying that they had no other option. Thus, the autocratic SEBI would achieve its objective, having remained a mute spectator.


The Rationale:

The main reason cited for extending trading hours is that SGX Nifty starts trading in Singapore earlier and so it snatches away a lot of business from India. Has any study been conducted as to how much Nifty volume is traded on SGX before 9.55am and after 3.30pm and how much during Indian timings? One understands that the volumes are insignificant except on rare occasions when there is major global turbulence. Moreover, SGX starts trading from 6.30am IST. So would NSE/BSE consider starting trading from 6.30am in future? What if (and hopefully so) Nifty is listed on London and US exchanges? Would then SEBI allow trading up to 1.30am IST to match US timings so that the volumes remain in India?

The other reason for the extension is that NSE and BSE are profit-making organisations and they have to maximise shareholder value. In that case, they should ideally keep the markets open for 12 hours or more, or maybe even 24 hours, since the trading is electronic. Should the BSE not take the opinions of market participants who are also minority 49% shareholders?

One other reason is that the extension will facilitate FIIs to trade more and will suit their timings. Are we Indians still slaves to the foreigners? Should we not bother about our inconveniences as well? Why is the Hong Kong market open only for four hours?


The Problem:

So what is the practical problem if the markets open early?

The stock brokers’ offices do not function like other offices where 9am timing means that the staff has to report by 9am. They have to report at least an hour or two early and prepare for the day’s work, like checking bank accounts, client accounts, margins, news analysis and research, taking orders, etc. In metro cities especially, the staff has to commute long distances and so it is physically very difficult to cope up. The big brokers can run their offices for 24 hours but the small brokers cannot match that at all. So this move will be against the interests of small brokers who typically service small investors. 

The most important problem is lack of back-up infrastructure. We live in a country where even now cheques are cleared in 48 hours. Small investors live in places where they have accounts in cooperative banks and not in private banks like their counterparts in metros. First, the banking and depository infrastructures have to gear up to meet the demands of the extended trading timings. RBI, NSDL, CDSL, all the banks and all the depository participants (including many banks) have to start functioning from 9am, otherwise there could be a serious timing mismatch leading to disastrous situations. Since 2004, due to increasing globalisation and volatility, indices have hit lower or upper circuits many times, almost averaging once a year. In such cases in future when the markets open in circuit, the brokers or traders/investors may be having enough funds in their bank accounts or having enough shares in their depository accounts, but due to the mismatch in timings they may not be able to transfer funds/shares in time. They would then be declared defaulters for no obvious fault of their own and their outstanding positions may be compulsorily squared up, leading to huge losses and disputes with clients. Who will claim responsibility for such losses? Will SEBI, BSE or NSE compensate the brokers and investors?



It is quite evident that SEBI, BSE and NSE have not applied their mind properly and, without taking into account the infrastructural and procedural difficulties and the opinions of market players, have gone ahead to implement this idea to suit their interests and their autocratic attitude. A similar situation had arisen when SEBI had almost decided to implement T+1 settlement but sanity had then prevailed. We hope that this time too, some degree of sanity prevails and this arrogant decision is reversed without making it a prestige issue.

Janardan Kothari


-- Sucheta Dalal