Explained: NSE wants to increase equity trading hours. How could it impact you?

This is not the first time that the chatter around increasing trading hours has been in the air. In fact, the market regulator Securities and Exchange Board of India (SEBI) allowed exchanges to extend their trading time way back in 2009.

Additionally, SEBI allowed extending trading time in equity derivatives contracts till almost midnight (from 9 am to 11:55 pm) in October 2018.

Now, as per a Business Standard report, NSE has now started consultation towards increasing market trading hours in the equity segments.

“Sebi has already allowed equity market timing to be extended to 9 am to 5 pm, maximum. In derivatives, they have allowed from 9 am to 11:55 pm. We have not moved forward. Now, we are working with our members and taking their feedback on what needs to be done,” the Business Standard report quoted NSE’s managing director and chief executive officer Ashishkumar Chauhan saying so.

What is the current trading hour on NSE?

Currently, for the cash segment on NSE and BSE and the NSE F&O segment, the trading hours are 9:15 am to 3:30 pm.

After a pre-opening session from 9 am to 9:15 am, active trading on NSE and BSE happens for 6 hours and 15 minutes, beginning at 9:15 am and ending at 3:30 pm. The NSE wants to increase the closing time by 1 hour 30 minutes till 5 pm.

The market timings of the currency derivatives segment on NSE are 9 am to 5 pm. On the other hand, commodity markets trade for 15 hours from 9 am to 11:55 pm.

What are the trading hours in major global markets?

If we compare NSE and BSE trading hours in equities to the two major stock exchanges in the US – the New York Stock Exchange (NYSE) and NASDAQ – they have core trading sessions of 6 hours and 30 minutes. They open at 9:30 am and close at 4 pm Eastern Time Zone.

However, some of the exchanges in America and Europe have adopted longer trading hours, sometimes even extending up to 23 hours.

The Shanghai Composite index opens from 9.30 am to 11.30 am, and then from 1 pm to 3 pm – a total of 4 hours.

The Tokyo Stock Exchange is open from 9 am to 11:30 am and 12:30 pm to 3:00 pm Japan Standard Time- total 5 hours.

The London Stock Exchange is open from 8 am to 12 pm and 12:02 pm to 4:30 pm Greenwich Mean Time – a total of 8 hours 28 minutes per day.

Why should trading hours be extended?

This is a global world. Economies are highly connected and the integration of the global markets is increasing. The Indian stock market reacts to the developments in other major economies and markets in the US and Europe.

Markets which have longer trading hours tend to be better able to hedge the risk arising due to global information flow.

“While the Asian markets are ahead of the Indian time zone, the European and American markets extend much beyond the Indian market timings. Some of the Exchanges in these countries have adopted longer trading hours, sometimes even extending up to 23 hours. This has facilitated market participants in these countries to hedge the risk that might arise due to global information flow,” says SEBI in a discussion paper on the increase in market hours of trading in exchanges.

SEBI believes extending the trade timings of the domestic exchanges may enable the domestic market participants to take advantage of such global information flows.

SEBI adds that Indian markets have been in the pursuit of matching the best international standards and practices, and the extension of market hours would, perhaps, be a further step in this direction.

“The extension of market hours may help in effectively assimilating information and thereby make Indian markets efficient, benefiting Indian investors,” SEBI says.

Another logic that is given in support of increasing trading hours is that SGX Nifty which is a derivative of the Nifty index traded in the Singapore stock exchange starts trading in Singapore earlier.

There are two types of Contracts in SGX with different settlement periods-

1- E – SGX QUEST (T) Settlement same day – Timings- Monday to Friday 6:30 am to 3:45 pm IST.

2- E* – SGX QUEST (T+1) Settlement next day, Timings- Monday to Friday 4:45 pm to 10:30 pm IST.

As per sgxnifty.org, these two contracts have different trading timings which enable traders all over the world to trade in SGX even if the market is closed.

The early opening of SGX Nifty snatches away a lot of business from India as foreign institutional investors (FIIs) tend to invest in Indian future contracts through SGX Nifty.

How could it impact retail investors?

An extension in trading hours would lead to an increase in volumes but it is unlikely to have any material impact on the stock prices.

The biggest benefit of extending trading hours will be that it will reduce overnight market risk.

Longer trading hours will help traders manage overnight market risk more effectively which will attract more market participants including mutual funds and FIIs.

However, increasing trading hours just by a couple of hours will not be much beneficial to retail investors. Analysts say if the market hours are extended till 11:55 pm, it will benefit positional traders to adjust to the news flows in the US markets.

“Currently, our market timings overlap (at least for some time) with Asia-pacific and European markets but not with American. Traders will be looking forward to the day when NSE extends the trading hours to 11 pm. This will significantly help positional traders manage their positions according to US markets and reduce overnight market risks,” said Yuvraj Thakker, MD, Stoxbox.

If the domestic market timings are aligned with trading timing in the US and Singapore exchange, it will significantly reduce the risk of traders, and will eventually reduce market volatility.

This article first appeared on .intGenie