Get set for late-night trading

Investors needn’t worry as only equity derivatives will be traded in second session

Those who like the adrenalin rush from trading in equity markets will soon be able to do this for longer hours. In May this year, the Securities and Exchange Board of India granted permission to Indian exchanges to facilitate trading in equity derivatives well into the night — up to 11.55 pm. The regulator is, however, likely to give the final nod only after the exchanges are able to prove that they have the required infrastructure and risk management system in place.

This move was prompted by the concern that overseas traders prefer other global exchanges after markets close here. Many global stock exchanges, including exchanges in Japan, Singapore, Hong Kong and Taiwan, trade for longer hours. By extending the trading hours here, the regulator is not only trying to sync with other global markets, it is also attempting to stall migration of trades from Indian exchanges in the post-market hours.

Both BSE and NSE are now reported to be gearing up to extend trading hours in equity derivatives. Since commodity derivatives already trade late in to the night, most brokers could already be equipped to deal with these extended trade timings.

On the anvil

The final contours — the framework that will be adopted, the securities that will be traded in the later part of the day and the settlement mechanism — will be spelt out closer to the implementation, which is slated for October.

But exchanges have begun communicating with their clients and member brokers, asking them to get ready to offer trading over longer hours. There will be two sessions in a day — the first, from 9.15 am to 3.30 pm, and the second could start after a gap of 60-90 minutes and extend up to midnight.

Trade settlement is likely to be at the end of the first session. Trades that open towards the end of the second session will be continued when the first session commences at 9.15 am the next morning. In other words, the trading session will begin around 5 pm and end around 3.30 pm the next day.

Since SEBI has allowed exchanges to trade both index and stock derivatives in the second session, exchanges are considering offering both. All the 206 stock futures and options currently traded on NSE could be traded well into the night now, along with the index futures and options.

Minimum impact

For long-term investors, there will be minimal impact. One, only equity and commodity derivatives are going to be traded in the night session. So, even if you see an earth-shattering event take place in the US or elsewhere late at night, and want to rush to your terminal to sell all your stocks, you cannot do so. The window for buying and selling in the cash segment is likely to remain between 9.15 am and 3.30 pm.

But opening stock prices in the cash segment will be influenced by the overnight movement in derivatives. It can be argued that the opening prices are anyway influenced by overnight events in global markets. But the reaction can be accentuated further with equity derivatives trading up to midnight. There could be sharp swings in the stocks you hold when trading opens in the morning.

More work for traders

Traders, however, might find themselves in a spot. If they hold positions in futures and options, they cannot afford to relax while the second session, between 5 pm and 12 pm, is in progress. They will need to monitor their positions at regular intervals and take action whenever necessary. This is likely to affect their work-life balance.

Trading volume is also likely to be distributed over the two sessions, affecting liquidity in the first session. That needs to be accounted for, while drafting a trading plan.

Staff of brokerage outfits will see their working hours increase significantly. Expenses incurred by brokerages is likely to move higher in the short term. If the longer trading hours result in attracting overseas trades to Indian bourses, that could compensate for the extra expense and effort. But the jury is still out on that.

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