India’s market regulator, SEBI in a landmark decision on May 4 announced that stock exchanges will now be able to trade in the Equity Derivatives Segment between 9 am and 11.55 pm. The motive behind the change is to bring the timings in-line with the commodity market.
This step was taken with a view to enable integration of trading of various segments of securities market at the level of exchanges from October 1. As of now, trading is allowed from 9.15 am until 3.30 pm.
Stock exchanges seeking to extend their trading hours will have to seek prior approval from SEBI by submitting a detailed proposal, the circular said.
That should include the framework for risk management, settlement process, monitoring of positions, availability of manpower, system capability, and surveillance systems.
“SEBI’s announcement to allow exchanges to extend derivatives trading till 11:55 pm is a positive move. Traders can benefit by avoiding overnight swings and can align their trading to be more in sync with global markets. Longer hours will also bring in more opportunities for traders” Anup Chandak, Senior Manager for Derivatives Advisory, Sharekhan told Moneycontrol.
Here’s how it will benefit investors in the long run:
Likely increase in trading volumes:
Even though the response to likely rise in trading volumes seems mixed but experts feel it could pick up with time.
“I don’t think the volumes will go up significantly, what we observed when the market opening was preponed was the same positions get segregated across the additional time frame,” Nikhil Kamath, Co-founder, Zerodha told Moneycontrol.
On the other hand, Vikram Limaye, MD & CEO, NSE said that it is very hard to predict quantum to increase. “But, I do believe in trade volume after implementation of this circular. Since you are giving the option to trade more time and secondly giving hedging option in the corporate action after a traditional trading hour,” he said.
In Sync with global markets:
Ashishkumar Chauhan, MD & CEO, BSE said that globally, the derivative exchanges are already following the extended trading hours. The introduction of the extended hours is a positive development.
Limaye of NSE says that it is a good development for the market since we are moving to in line with global standards. “There are enough examples where derivative market opens much longer time than cash market. So again I would say it is a good move,” he said.
Extension of trading hours would bring down volatility in markets and we could avoid wild swings on any given day. It will also give an opportunity to traders to hedge their risk which will lead to avoiding losses and protection of capital, suggest experts.
“A small extension or pre/ post market contracts on some contract like international bourses will be par for the course and might bring down volatility, it may also give domestic investors an opportunity to hedge risks overnight wherein only the larger participants had this opportunity up until now, using instruments like SGX etc,” said Kamath of Zerodha.moneycontrol