India’s two largest stock exchanges will allow investors to put in bids for shares before bourses open to reduce price swings.
The National Stock Exchange and the Bombay Stock Exchange will introduce a 15-minute session during which buy and sell orders can be placed and matched for benchmark stocks before trading starts at 9:15 am starting on October 18. The markets now open at 9 am with no trading before exchanges open.
“It will be like a trailer before the real movie begins,” said Jagannadham Thunuguntla, chief strategist at securities firm SMC Global Ltd. in New Delhi. “It will help in the international integration of Indian exchanges.”
The Sensex has surged 16 per cent this year and is the best performer among the world’s 10 biggest stock markets as overseas investors bought a record $21 billion of Indian equities. The government might allow overseas individuals to buy stocks for the first time, easing a rule that restricts investment to mutual funds, a finance ministry official with direct knowledge of the matter said on October 8.
Investors will have as long as eight minutes to place, modify or cancel orders before the indicative offers are matched with electronic trading system-determined opening prices between 9.08 am and 9.15 am, Bombay Stock Exchange’s head of product strategy Sayee Srinivasan said. The period could be as short as short as seven minutes to deter orders aimed at skewing prices, and there will be a 20 per cent limit imposed on swings, he said.
‘Integration’
“This will lead to greater transparency and better price discovery,” Srinivasan said. “The uncertainty about higher volatility at the open will be reduced.”
The bourses later plan to extend the preopening session to companies outside of the 30-member Bombay Stock Exchange’s benchmark Sensitive Index, or the Sensex, and the 50 stocks on the National Stock Exchange’s Nifty Index.
“The price will be determined by demand and supply,” said Divya Malik Lahiri, spokeswoman at the National Stock Exchange. “It’s a common practice in international exchanges to keep volatility in check.”
From January this year, both of the exchanges brought forward trading hours by 55 minutes to 9 am to boost volume. They are also introducing new products, cutting transaction costs and are partnering with exchanges in Singapore, London and Chicago as more investors seek to buy Indian equities.
