It is just a matter of 10 minutes, but translates into a huge signal by the Bombay Stock Exchange (BSE). After being the underdog for just over a decade, the BSE scored a point by showing that it can take the lead in the increasingly acrimonious competition in the capital market space.
Sources say that despite it saying that it would bow to the wishes of market intermediaries (who are largely against extended trading hours), the National Stock Exchange (NSE) was in fact working at extending its trading time. The BSE's decision to start trading 10 minutes earlier (at 9.45am) from 18th December was just a signal that it does not intend to permit the NSE to set the agenda on all market-related developments. The NSE followed suit and extended its trading hours by one hour. Immediately, BSE also extended its trading hours from 9am to 3.30pm. So from Friday onwards, trading on both BSE and NSE will start from 9am instead of 9.55am. The move from NSE is, however, not surprising since it was the same Exchange that has lobbied long and hard with the regulator to push for this change.
However, the Securities and Exchange Board of India (SEBI), as is its wont these days, forgot to take into account the many other changes that needed to be put in place to ensure that margin funds are credited and available with brokers and Net Asset Values (NAVs) can be declared on time.
SEBI allowed bourses to set their trading hours between 9am and 5pm in October on condition that appropriate risk management systems and infrastructure are in place. NSE was seen as the big beneficiary of this move, because it was openly concerned over losing Nifty volumes to the Singapore Stock Exchange (SGX), which opens earlier.
The Singapore International Monetary Exchange (SIMEX) trades an NSE-licensed derivatives product on the NSE's Nifty index, named SGX CNX Nifty. Its volumes are driven by foreign institutional investors (FIIs) who trade on the futures before the Indian markets open.
Foreign investors, constrained by the limited ability to participate directly in the Indian equities market after the ban on participatory notes, flock to the SGX Nifty futures product to catch some of the action in the Indian markets. Domestic investors in Singapore subsequently take positions on cues from these FIIs. SGX has somewhat stolen NSE’s thunder due to its impressive track record in derivatives and high ethical standards.
With a new team in place at the BSE, the competition is bound to heat up on several fronts. Already, there are open differences between the two bourses on the software for algorithm based trading—the NSE has allegedly refused to grant permission for those algorithm trades, where one of the legs involved transactions on BSE as well. Interestingly, although James Shapiro of the BSE has made this allegation in public, SEBI, which is seen as being pro-NSE, has made no public attempt to intervene or ensure a level-playing field between the bourses.
The NSE is already at war with the MCX group with litigation in the Bombay High Court (over broker front office software) and before the Competition Commission over transaction charges in the currency market.
What is important about the war between the bourses is that it will now begin to raise questions about the relevance of SEBI as the capital market regulator, if it continues to remain a mute spectator and permits the exchanges to take their battles to other judicial forums.
With both the exchanges going for extended trading hours, what we said earlier about the difference 10 minutes can make is out there in the open. — Sucheta Dalal & Yogesh Sapkale