Sucheta Dalal :Homework Please
Sucheta Dalal

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Homework, Please  

December 3, 2009

Policy decisions by the stock market regulator are usually the result of lobbying by specific groups or intermediaries or the result of a volley of investor complaints. The usual procedure is to prepare a note, put it before the primary or secondary market advisory committee, then seek public comment on the distilled wisdom that is obtained and then frame the rules. Even this is not foolproof. One assumes that something non-critical like the extension of trading hours by stock exchanges would be put through such a process. Well, explain this then. It has been publicly discussed for several years and a majority of brokers was always opposed to it. Yet, look at the sequence of events.

23rd October: The Securities and Exchange Board of India (SEBI) allows bourses to extend trading time and operate between 9am and 5pm. One newspaper immediately quoted an unnamed NSE (National Stock Exchange) official saying it would start extended trading ‘very soon’. The BSE also ‘welcomed’ the move. But brokers were upset. There was a series of reports, including on blogs and other posts, pointing to problems with the extended timing.

9th November: It was probably beginning to dawn on regulators that our infrastructure was inadequate to declare net asset values (NAVs) or ensure margin payment credits from banks from smaller centres. So SEBI clarified that the extension was not mandatory; it was entirely up to the exchanges to decide whether they wanted to extend the time.

19th November: Ravi Narain, managing director of NSE, was the first to rush to the media to say it was not in a ‘hurry’ to change timings and that the proposal to extend timings had not come from the bourse.

23rd November: A survey by the BSE Brokers’ Forum said that 79% of its members were against the extension of trading time; 62% of the NSE brokers were also against it.

Shouldn’t SEBI have ensured that the last bit happened first? The single biggest beneficiary of the extended trading time would be the NSE, a commercial organisation with marquee global investors who would like to see rising revenues and profits. Longer hours would mean higher turnover translating into bigger profits for the bourse which already operates at a phenomenal 53% operating margin. Since NSE does not want to go public, it is probably under pressure from its investors, including foreign ones, to show higher profits by finding ways to drum up higher turnover. If permitting derivatives in dubious stocks favoured by speculators is one, extended trading time was another.

-- Sucheta Dalal