Leading stock exchange of India wants extended trading hours for equity market with the rationale that it will help them fight competition from overseas exchanges and also help them in improve their valuation.
On the other hand, the brokers firmly believe that longer trading hours may far exceed the benefit and it will also increase their operational cost without adding much to the volume of trade per day.
Proposal of Longer Trading Hours by Stock Exchange
Although CEO’s of NSE (Mr. Vikram Limaye) and BSE (Mr. Ashish Chauhan) came forward strongly with the idea of extending the equity market trading hours till 2300 hours.
This was surely a surprising moment for stock brokers. Both the CEO’s questioned that why equity can’t be traded in India, while commodity market remains open approximately till midnight.
SEBI has already allowed equity exchanges to trade till 1700 hours. But still the exchanges are adhering to 0915 hours till 1530 hours trading time.
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Extended Trading Hours benefiting Discount Brokers
Once the trading time in equity gets extended then they are definitely going to affect us as well as the brokers will try to settle operational cost from our pocket only. In such a way the brokerage charges are likely to be increased significantly by Full time broker as in this case significant portion of trading is done by calling the broker.
On the contrary the Discount brokers are likely to benefit as majority of their client’s trade online through trading app. For small investors, extended trading hours IS NOT LIKELY to help much. The six hours (approx.) available currently for trading are sufficient for price discovery and execution of trade for retail investors. With mobile trading on the rise mainly because of discount broker, those investors who are occupied at work can trade within the trading timings.
Is the business going to increase commensurately?
The issue of extending the trading time is not going to be an easy process as several layers needs to be addressed. Although there is not much technical problem in increasing the concept of trading hours, but it also concept of emotion attached to it.
On the flip side – the regulators SEBI will have to work longer, the exchange in turn will have to work loner as well.
Indian Market is influenced by Global Markets
The Indian market is markedly influenced by the global markets and global investors. No market participant in India can deny this influence and the co-relation. The most influential global market is the NASDAQ & DOW. It starts trading long after the Indian markets close.
Benefits to Retail Industry
Extended trading hours are likely to increase time overlap with global markets, thus reducing, to some extent, gap up shocks. Minimizing such gap up or gap down shocks is good for retail and small investors as it helps reduce the volatility of returns. In our country where retail investors shy from equity market, low equity market volatility will be a confidence booster.
Extension of trading hours are likely to increase traded volumes which is good for the overall market liquidity. This will be increasing the confidence of retail participants in the equity markets. Increase in volume may allow brokers to settle their increased operational cost.
Sudip Bandyopadhyay Group Chairman, Inditrade (JRG) Group of Companies, says-
If India has to become a global financial powerhouse with time and if Indian exchanges aspire to become purely international, then we need to have extended trading hours to match the global peers. However, this can be done over a period of time in phases. At this juncture, extending trading hours up to New York opening time, should be considered at least.
Effect of Longer Trading hour on Retail Participation
This topic needs to be debated in detail as mixed picture is coming to light. The debate should center stage upon how it is going to help retail investors and measures should be taken to protect retail investors. A mature stock market with less speculation and volatility like those of US and Europe can only be achieved after the retail participation grows.
Retail investors are hugely inclined towards equity market. This statement can be proven by their participation in equity through mutual fund and SIP route. This trust that retail investors are currently showing should not go in waste and their trust must be maintained.
Its only with time that we will come to know that how extended trading hours are going to effect the retail participation.
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