Their View. What’s traders’ take on market time extension?

The Indian market regulator, Securities and Exchange Board of India (SEBI), earlier this month, announced that the stock exchanges will be allowed to increase the trading time in the equity derivatives segment. According to this move, the exchanges can operate the derivatives segment from 9 am to 11:55 pm, subject to approval from the regulator. Currently, the derivatives segment trades between 9:15 am and 3:30 pm. While SEBI has extended the time after taking into account different factors, Portfolio sounded out to traders to see what they think about this move and its pros and cons.

The background

The Indian stock exchanges, which close at 3:30 pm now, remain cut-off from global events, especially from the US, that happen post the market close.

This often results in abnormal volatility in the form of wide gaps the next day, when Indian markets open, to absorb the impact of the events that had happened overnight.

This has resulted in domestic volumes shifting to overseas markets such as Singapore and Dubai. So, to align Indian markets with the global markets and to bring back the volumes from the overseas exchanges, SEBI has decided to extend the derivatives trading time.

Longer hours for traders

 

 

 

SEBI’s move to extend trading time is going to make the life of a trader hectic. This has been the consensus among all the traders we spoke.

“The stress level is going to go up for the trader. Proprietary traders, especially, will have to monitor their trade positions for an extended period of time to protect them from loss”, says Shivanand Gawde.

Traders with open position in the derivative segment cannot afford to switch off their trading terminals and will have to keep checking rates, especially around critical events.

For instance, if the US Federal Reserve makes a sharper-than-expected hike in policy rate, stock prices in India will also tank in the night along with their US counterparts. It might be too late to wait till the next morning to take corrective action.

Brokerages can make their staff work in shifts to man the longer hours. But full-time traders will not have this luxury and have to sacrifice their personal time.

“If the market is going to be open till 11:55 pm, when will a trader do his research, reading, collecting information etc”, asks Amit Ghuleja, a Proprietary Trader. This can result in sub-optimal trading decisions.

As of now, all the time available after 3:30 pm can be used for research and reading.

“Going forward, weekends will be when the trader will get to do his study and research. If that is going to be the case, when will a trader have time with his family? he adds.

Impact on volumes and volatility

However, traders feel volatility will definitely come down after the extension of trading hours.

Rajarshitha Sur, a trader from Mumbai, says, “Gap-ups and gap-downs will be lower as trading will be available most of the time.

Also, the possibility of any major event happening after 11:55 pm is very less, which will help reduce the volatility during market opening the next day”.

Will the domestic volumes increase because of the time extension?

Traders have a mixed view on this. Some feel that volumes may go up eventually. Ankur A Rege, a Portfolio Manager, says, “Volumes will not shoot up immediately. However, as time goes, volumes can pick up gradually”.

Shivanand says “Volumes may go up, but not the quality of trade”.

However, others feel that volumes will not go up just because of the time extension. Amit says, “Volumes will not go up unless the participants increase their capital. If the capital remains constant, just increasing the time will not help boost volumes”.

He also feels that the same amount of volume will get distributed through the day. “Volumes will get dried up. It will get distributed between 9 am and 11:55 pm instead of 9:15 am and 3:30pm”.

Concerns

Overall, traders welcome this move as they feel that it will largely help in integrating the Indian market with the global market.

“Markets will become more mature. We will get less gap openings, which will be very good for attracting more retail participants”, says Amit.

However, traders have their own concerns as well. For one, there could be a mismatch between the derivatives and the cash segment, as there is no extension of trading in the latter.

“There is no clarity on the cash segment now. Nothing has been said on how they are going to match the prices with the derivatives the next day. This remains an uncertainty”, says Ankur. He also cautions that markets do not like uncertainties and this could become a big disadvantage.

To avoid this, Shivanand says that the exchanges should come-up with index derivatives first and then expand to individual stocks. “This is because indices can take the cascading effects of the events that happen overnight, but stocks cannot if the cash segment closes at 3:30 pm”, says Shivanand.

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