Extended market trading hours: stock exchanges at loggerheads?  

November 13, 2009

Capital market regulator Securities and Exchange Board of India (SEBI) has announced its intention of allowing the bourses to extend market trading hours. This move will see daily trading time increase to 8 hours from the current 5 and a half hours.

The National Stock Exchange (NSE) has supposedly been lobbying hard for this move, as it is concerned of losing business to the Singapore Stock Exchange (SGX), which enjoys better volumes on account of longer trading hours.

The Singapore International Monetary Exchange (SIMEX), now known as SGX, also operates 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.

Interestingly, however, the SGX holds a 5% stake in the Bombay Stock Exchange (BSE), a smaller but bitter rival of NSE. This alliance in 2007 also posed a threat to Nifty’s domestic supremacy in the futures segment. Naturally, SGX’s stake in BSE raises a question mark on how much the BSE’s support to the proposed move would hinge on SGX’s influence on its thinking process. BSE officials were not immediately available to comment on Moneylife’s email, sent to seek their stance on the matter.

SEBI’s motive behind the extension is to bring the Indian markets in line with foreign markets, where trading takes place from 9am to 5pm. For the NSE, increasing trading hours on the bourse is crucial for sustaining its market-leader position and fighting off competition from a resilient BSE in the domestic market and an aggressive SGX in foreign markets. NSE’s profitability took a severe hit last year following the overall collapse in equity markets. Volumes suffered and revenues declined. Even BSE managed to put in a better performance, with revenues remaining flat. In this context, NSE may not want to forgo revenues from SGX’s licensed Nifty-based futures product by stopping this segment.

SEBI has yet to come up with any deadline for the exchanges to start trading with extended hours. The market regulator has put the onus on the bourses to put in place the infrastructure before migrating to the new trading timings. Given the plethora of consequences for all entities involved in the stock markets, SEBI may even rethink its call for extension in trading hours.
– Sanket Dhanorkar [email protected]