MSEI defers plans to extend trading hours as SEBI lays down terms

The country's markets regulator is open to the idea of the Metropolitan Stock Exchange of India (MSEI) extending its trading hours but wants a proper structure in place and has asked the exchange to first comply with clearing corporation norms.

The regulator told MSEI that in 2009, it had allowed extended hours for equity cash and equity derivatives. MSEI, however, is only allowed in the cash segment. It has now laid conditions before MSEI for extending its trading hours including thoroughly checking the IT, trading and risk management structures.

Within a day of announcing the extension of trading hours up to 5 pm, the Metropolitan Stock Exchange of India (MSEI) on Wednesday withdrew the circular on the same. The exchange had on Tuesday issued a notice announcing extension of trading hours till 5 pm from Friday (July 7).

In a revised circular on Wednesday, the MSE said, "It is hereby informed that the implementation of the revised schedule of trading hours...has been postponed".

"A circular mentioning the revised date of implementation will be issued separately," it added.

SEBI has asked MSEI to extend its timings only after meeting the required liquid net worth  of the clearing corporation of the exchange, which is Rs 100 crore. The regulator had issued guidelines in May last year which said that liquid net worth consists of fixed deposit, investment in liquid mutual funds and government securities.

According to SEBI's calculations, the liquid net worth of MSEI's clearing corporation is not in compliance with Stock Exchanges and Clearing Corporations (SECC) norms.

"SEBI and MSEI have differing views on the liquid net worth of the clearing corporation," a source close to the development told Moneycontrol. "MSEI has more than Rs 110 crore of liquid net worth, but the regulator is not including members' contribution and clearing banks' contribution in this net worth, which is allowed in Securities Exchanges and Clearing Corporation (SECC) norms."

A source close to the development said that while the regulator may not raise concerns over technology and trading structure, risk management will remain an issue. MSEI will also need to have an overall net worth of Rs 300 crore by September.

"Brokers are not comfortable with this move [of a 5pm closing time]," a market source told Moneycontrol. "Their argument is that the cost of running a business will increase if the timings are extended. At the same time, however, currency and bonds trading takes place till 5pm."

A market expert said that SEBI is working on a universal exchange in which the stock exchange will start commodity trading and vice-versa. "In such a  scenario, the stock exchange will be open till late night. Some big brokers are resisting this move."

The MSEI, earlier known as MCX-SX, was set up by Jignesh Shah-led Financial Technologies (India) Ltd (FTIL) and it commenced operations in the currency derivatives segment in October 2008.

It began operating as a full-fledged bourse with the launch of equity trading in February 2013.

The exchange is aiming to make market presence as it is currently witnessing near-zero trade volumes in the equity segment.

"We are a small and young exchange and have to create a market for ourselves," an MSEI source told Moneycontrol. "We have to be creative in order to attract volume to our exchange."