Why experts say no to extended trading hours now?

RELATED NEWS Exchanges to start trading at 9am from Jan 4 Nifty BSE | NSE 29/05/12 Are Mutual Funds betting on Nifty?

The gamble, wherein the exchanges behaving like for-profit organizations issued orders to start trading from 9 am on Friday, seems to have been miscalculated.

Following the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) move to advance market opening to 9 am from December 18, there was widesperead protest from the broker community as well as market experts.

Subsequently, the Securities and Exchange Board of India (SEBI) stepped in following which the NSE and BSE jointly decided that the revision of market open timing to 9 am shall be effective from January 4, 2010. In the interim, the current market open timing of 9.55 am will continue.

Are we ready?

The revised notice from the exchanges now says that trading hour extension has been postponed by a couple of weeks. According to experts, this by no means prepare them to deal with the technacalities involved in longer trading hours. The banks' real-time gross settlement (RTGS) system, a funds transfer mechanism where transfer of money takes place from one bank to another on a 'real time' and on 'gross' basis is not in place yet-it starts only at 9.45 am, they say. This will cause disruption in the functioning of the exchanges.

Traders, who, want to make margin payment at 9 am though their banks may face a hitch. However, bankers say this isn't a major glitch, since brokers can always make the payments via the internet.

However, in all probability, enterprising banks may think of booting their systems earlier.

Moreover, Palaniappan says, brokers' offices may also not be able to handle the extension of trading hours as of now.

'An arrogant move'

Expressing discontent over the move, Samir Arora, Fund Manager, Helios Capital, said, it was an arrogant step on the part of the BSE and the NSE. "The extension has been done at a very short notice. It will only increase inefficiency. There is no research to show that market efficiency will improve post this move."

Further he said the move was uncalled for as there was no significant SGX trading even in volatile times.

Sharing a similar opinion, Market veteran, and Director and Co-Founder of Motilal Oswal Securities Raamdeo Agarwal, said that the SEBI should have not allowed the extension in the first place. "It was not needed."

Brokers: A discontented lot

The BSE brokers' forum was not happy with extension in trade timings. It said, the BSE did not consult brokers before extending timings. "The margins between 9 am -11 am will be difficult to adjust to."

Deena Mehta, Managing Director, Asit C Mehta Investments said it was an insensitive move by the exchanges and that too at a very short notice. "This will raise corporate governance issue on the exchanges."

The Association of National Exchange Members of India (ANMI), which had conducted an online survey to gauge the opinion of the member brokers and investors at large, said a majority of NSE members were in opposition of opening the market at 9 am.

"It is tough to operate with a 24-hour notice," said EMC Palaniappan President of ANMI. "The markets are divided on trading extension." Further, he said that it was wrong for the BSE to assume NSE wouldn't respond.

The Proposal Backdrop

The Securities and Exchange Board of India (SEBI) in October allowed stock exchanges in India to extend their trading hours to a maximum possible window of trading between 9 am and 5 pm.

The SEBI move was prompted by a long-standing demand by the stock exchanges for allowing extension of trading hours to capture more trading from international investors, especially from Asian countries like Singapore where exchanges open earlier, Indian time.

However, soon after the regulator gave exchanges the go-ahead, opinion in the stock market fraternity was vertically divided with several brokers and brokerages saying lack of infrastructure could prove a hindrance to extend market hours to the full window of 9 am to 5 pm.