Long trading hrs won't lead to higher volumes: Deena Mehta

Q: You have raised two technical points, one is of early pay-ins and the kind of difficulty it may pose and second of bid/ask spread because of extended trading hours, can you take us through those two?

A: One is early pay-in as I said it is an unwritten rule that you should not allow anybody to commit more till he has met with his previous day's liability. In fact when we had seven-day cycle, fifteen-day cycle, if the badla pay-in did not through, the market would not open. Sometime I do remember market opening instead of 12o'clock at 1o'clock just because the pay-in was not over.

So having people to move the funds in to the bank-as it is today we have a 9.30 cut off then by 10.30 the banks-there are almost 14-15 clearing banks, all the data has to be collected, information has to be rallied back to the exchanges informing them who has paid and who has not. Then the exchange takes action on those members, by 11.30 their terminals are deactivated. So if you are saying, if you are going to open the market at 9.00, this whole process has to finish lot earlier. Whether banks are ready for that, I have serious doubts because just to get the file in the morning of what are the collected money etc, it is almost 8.30. These things considered, it is upto the banks, how ready they will be, one needs to know.

The second point is about bid/ask spread-here what happens is that orders tend to get aggregated. Since you are constantly on the market, you will see that between 10.10 and 10.30-10.40 there is lot of activity in the market. In the afternoon time there is a lull in the market then again from 2.30-3.00 to about 3.30 there is a large amount of activities. What I feel is that having longer hours, in a fixed time span if everybody knows that this is the only time span in which I have to work then people would come within that time span only and they would try to trade. For example, I have given a very rudimentary example of these mandis which are there all over the country. So everybody decide that this is the time within which you have to come and you have to sell your products then you have aggregation of orders. When you have a longer time spread that aggregation which has to happen, it would get more spread out and because of that the bid offer spread and the impact cost could go higher. Again this is an assumption and one needs to statistically study how exactly it will move but logically, the bigger time span you have and if same volumes are there or slightly higher then the spread of these orders would be on a bigger time span.

Q: You have seen both sides, you were a part of the BSE as well, why do you think the exchanges are doing it because we don't have a clear cut reason for the extension and secondly, is this still open to dialogue or is this a matter of days and months before we do live with extended hours?

A: I have not understood why the Securities and Exchange Board of India (SEBI) coming out with a circular saying that these are extended hours under section 11. Section 11 gives general powers to SEBI to do anything for the market. So when SEBI uses section 11, what I understand is that there is no specific requirement of SEBI to have a say on this. It is part of the exchange administration which can fix the timings of the markets. So it is not necessary for SEBI to essentially intervene. Only reason why I feel maybe SEBI would have intervened is to see to it that both the exchanges or whichever other exchanges are part of this thing, those exchanges would may be some kind of uniform timing because if you remember, when we had those automated lending borrowing mechanism (ALBM) days-both the exchanges, one exchange closed the books on Tuesday or Wednesday and the other one closed on Friday. There was some kind of arbitrage opportunity because of the different closures and if there is a regulatory arbitrage where one exchange follows one kind of rule and other exchange follows another kind of rule, I think maybe because of that it could be that SEBI wanted to intervene and say that everybody follow this time. So far as the necessity is concerned, I do not know and nor have I understood as to why exchanges would want to increase the time. Only thing which again is not necessary in my view but only advantage I see in this whole thing is volumes going up and maybe exchanges fees going up. Exchanges have just announced some kind of concession but I am just playing a devil's advocate. The fact that SEBI has given its consent to this so maybe SEBI is seeing something which is not very apparent but as I understand, I think lot more readiness and lot more documentation on how things will happen and what are the benefits are necessary before we go into this decision of changing the timings.