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Last Updated : Mar 23, 2020 03:49 PM IST | Source: Moneycontrol.com

A complete shutdown would be disastrous, regulators could look at short trading day: Jimeet Modi

While the argument for a shorter trading day could be made and would be a void, a complete shutdown would be disastrous.

Moneycontrol Contributor @moneycontrolcom

Jimeet Modi

The capital market shutdown has multifold ramifications of what a market shutdown would mean:

Complete loss of reputation and confidence from a global standpoint. Most markets are trading online, including India.

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Shutting down India's markets when the rest of the world (including Italy, Spain, etc.) still operate online would mean and send a signal that we can't have minimal BCP as compared to the rest of the world?

Let's take a few examples - What happens to someone who wants to redeem money from a liquid fund or a debt fund or an equity fund to pay for any expenses, hospitalization, or even any living expenses, etc.?

What happens if you shut down the market for 5 days to see it reopen a 20-30% lower gap-down in 5 days? Say the Nifty does open lower, what happens to the systemic risks that get opened up for brokers, clients, clearing corporations, exchanges because of panic in re-opening?

The capital markets historically have been positioned as a promise and symbol of liquidity as compared to real estate, etc. such that in case you need liquidity from on asset in 2 days, the stock markets will be liquid such that you can get money.

What happens to that promise?

Also, God forbid, this blows out of proportion (which I pray it doesn't) then will market be shut for 15, 20, 30, 60 days? Has anyone imagined what would happen in such a case? Also, when do you decide to reopen? When the last patient has recovered?

When there are no new cases? No one knows what's happening and what's going to happen.

In today's world, capital markets almost operate as a proxy to banks and banking services. All settlements, etc are extremely interconnected. Are banks being shut down as well?

If doctors are custodians of people's health, people working in the stock markets are custodians of people's wealth. While wealth may be less important than health, but can't be completely ignored.

While there will be disruptions and customer, the experience would be affected, but definitely not shattered as would happen in a complete market shutdown.

While the argument for a shorter trading day could be made and would be a void, a complete shutdown would be disastrous.

Regulators have looked at curbs to reduce panic and volatility; further steps could be looked at:

• Reduce trading hours from the 10-2 in line with banking settlements
• Gradually further increase margins in derivatives and cash segments to make excessive speculation difficult

• For brokers, look at few relaxations on compliances pertaining to filing compliances, reporting compliances, etc. so that fewer people need to work (MCX has done this. Other yet to follow)

(The author is Founder & CEO, Samco Securities)

Disclaimer: The views and investment tips expressed by investment experts on moneycontrol.com are his own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

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First Published on Mar 23, 2020 03:49 pm
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