Market regulator Sebi to seek fresh feedback on trading hour extension

Earlier, NSE had said it had carried out an extensive consultation process for about nine months and had obtained consensus from most industry players

The Securities and Exchange Board of India (Sebi) is likely to undertake a new round of market consultations before allowing the National Stock Exchange (NSE) to extend its trading hours, according to people in the know.

The market regulator wants to address potential infrastructure, surveillance, settlement, and unforeseen risks before giving the final go-ahead, they said

The NSE has requested Sebi’s approval to keep the derivatives market open for a special session from 6 pm to 9 pm. Initially, the exchange plans to allow trading only in index derivatives during these extended hours. However, there are concerns raised by market players about allowing index trading without pricing cues from the underlying stocks.

Previously, the NSE stated that it had conducted an extensive consultation process over nine months and had gained consensus from most industry players. Sebi, however, believes that further deliberations with stakeholders are required but this could potentially delay the launch of extended trading hours.

“We think there is a need for one more consultation process before deciding on the market time extension. We need to understand if the infrastructure is ready and what all the stakeholders in the market think of this,” said an official.

The NSE has indicated that it plans to proceed with the extended hours by the end of this financial year, subject to regulatory approvals. While the NSE has promised to provide reasonable time for foreign institutional investors and other stakeholders to adjust, traditional brokers have raised concerns about operational issues, such as manpower, surveillance, tech preparedness, and system capabilities.

“The infrastructure of all stakeholders is not ready for extending market hours. It might be easier for online stock brokers but for traditional stock brokers, this would lead to an increased variable cost. There are concerns if this will generate enough volumes to offset the increased costs. Brokers will have to deploy extra resources and have an active back office for more hours to resolve any possible issues,” said an executive of a traditional broking house.

Extended market hours are expected to enable domestic market players to respond more proactively to global news flows. When the Indian markets close at 3.30 pm, European market activity is at its peak. The US market opens around 7 pm India time.

Sources said that NSE also needs to bring Indian Clearing Corporation — a BSE arm— on board for a successful time extension.

In 2018, Sebi granted in-principle approval for exchanges to set their trading hours in the equity derivatives segment between 9 am and 11.55 pm — similar to that for the commodity derivatives segment. However, exchanges were asked to submit a detailed proposal with a framework for risk management, settlement process, and monitoring of positions to Sebi for approval.

A closer look
 

- NSE’s working group consulted stakeholders for nine months

- Exchange sought approval for special trading hours between 6 and 9 pm

- Sebi consultation on risk assessment, system preparedness, may delay plans for extended hours

- Traditional stockbrokers point out operational challenges, cost issues