Brokerages may not be ready for extended trading hours

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The Securities and Exchange Board of India (SEBI) has allowed the stock exchanges to extend trading hours of equity markets. With the green signal, stock exchanges are now allowed to start trading at 9am and close the bell at 5pm. Currently, India's exchanges operate between 9.55 am and 3.30 pm.

Experts say the move is aimed at aligning Indian stock markets with international ones in a bid to woo more trades and also counter the emerging Singapore Exchange Limited's (SGX) Nifty, which opens sooner (7am India time) than the National Stock Exchange's (NSE) Nifty.

Even as the BSE and NSE may be biting their lips in anticipation of more business due to extended trading hours, stock brokers are nonplussed over the increased work hours.

Rationale behind move

Delving on the rationale behind the SEBI directive, Nirmal Jain, CMD of leading brokerage firm India Infoline, says, "A lot of market volumes from Indian markets are going to Singapore Nifty, which opens earlier. However, SGX Nifty will still start sooner so the purpose will only be partly fulfilled."

Jain says that most international stock markets work for about eight hours a day with a lunch break thrown in between, compared to Indian markets that are open for only five-and-a-half hours.

"However, brokers staying in cities like Mumbai may find it difficult to commute long hours and reach," he says. "Maybe extending the closing bell to 5pm is okay but advancing the closing bell would tough on them."

Jain adds that the fact that many banks shut before the market closes - if the new timeframe is implemented - could be a major hurdle for the regulator. "Bank timings have to coincide with market timings. What if there is a sudden volatile downmove in the market. The brokers are expected to put in their margin check immediately and the banks should be open for that," he asks. "There are quite a few other questions that need to be answered before we move into this."

"More than aligning markets to international exchanges, I think this announcement clearly suggests that SEBI wants to align timing with corporate offices and government offices because our markets are driven by local news," feels Dinesh Thakkar, CMD of Angel Broking. "It is to reduce the gap-up and gap-down openings the next day due to local developments."

Trading volumes may go by about 10-15% as a consequence of the extended hours, he adds. "Another plus point I can see is that volatility may come down," says Portfolio Manager PN Vijay, though he adds that such long hours were not justified and that exchanges should consider working from 9am to 4pm.

Most brokers not ready

However, most Indian brokers may not be ready yet. "The important thing they are forgetting is that in the broking business, there is a significant work, which their back-offices and risk management offices have to do," Jain says.

A broker needs to make a tie-up balance on the same day after trading shuts, as he needs to exactly know the client's dues the next day to carry out the follow-up activity of collecting money and margin balances, he adds. "Most brokers and even exchanges will need to beef up their infrastructure. Even when the markets shut at 3.30 pm, the trade file after a settlement from the exchange takes a few hours to reach us."

"We are exposing the risk management system of our Indian broking community by extending these trading hours," says Investment Advisor SP Tulsian. "It will also put a lot of pressure on the entire investor community."

"Starting the day at 8am and not being able to wind up before 6.30pm or 7pm is a tall task," he says, adding, "One will also need to increase manpower [as a result of more trades] and increase back-office strength, all of which will not be offset by the increased revenues."

However, Thakkar of Angel Broking disagrees. "The cost escalation would be offset because of additional revenue stream that we will get," he says.

"People will get used to it," says Jain of India Infoline. "The way technology is progressing, maybe next few years time we may see 24/7 market. In the US, you don't have to go through exchanges because certain markets are beyond exchanges too. I think things will move in that direction and brokers and all of us will get used to it and we will need to adapt our systems and infrastructure to that."