Do equity markets really need longer trading hours?

Over the last one week, the recently launched Metropolitan Stock Exchange of India (MSEI) managed to create quite a flutter. Its decision to extend trading timings for equities till 5pm did manage to stir the market out of its slumber. Eventually, the NSE and the BSE refused to react and that meant that the MSEI was also forced to withdraw its announcement quietly. Of course, with zero volumes on most days, the MSEI has only symbolic value in the markets. But the bigger question is whether India really needs longer equity timings?

Experience of 2010… 

Back in early 2010, the BSE decided to extend timings at the opening which was followed by NSE extending trade timings starting 9.00 am in the morning. That has remained the format of equity trading sense. However, the trade closing has continued at be at 3.30 pm only. If one looks back at the experience since 2010, there has been no perceptible increase in trading volumes as a result of that increase in trade timings. In the Indian markets, volumes have been concentrated principally in the first hour and the last hour of trade. That trend has remained the same after 2010. The volumes concentration in the two time zones still continues. Therefore expecting the market volumes to go up as a result of an increase in market timings is quite ambitious. At best it will put more strain on the infrastructure of brokers and traders.

Following the commodity story… 

One of the arguments offered in favor of longer trading hours is that this facility is available on commodities and forex. However, that is a different ball game altogether. Both commodities and forex are global assets and therefore require longer trading hours. Also they are impacted in the short term by more lateral factors. The same cannot be said about equities. The second argument is that due to shorter trading timings, India may be losing its competitive edge to Dubai and Singapore. But, to take on those markets, you have the IFC at the GIFT in Gujarat. There is no point in mixing that up with the onshore equity markets in India.

Trade processing a challenge…

Most of the FII trading in Indian equities and derivatives happens out of the trading desks in Singapore and Hong Kong respectively. Both are in a time zone that is 2½ hours ahead of India. A 5 pm closure will mean that institutional trade confirmations will reach global traders by 6 pm which will be 8.30 pm in Singapore and HK. Obviously, that is not entirely practical. Even in the case of domestic mutual funds, the declaration of scheme NAVs could get inordinately delayed. In a nutshell, the benefits of extended trade timings in equities are very few. The current equity market timings have stood the test of time and are best left that way! ©

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