The pre-open session, introduced in October last year, has not been very helpful to investors in judging the market’s direction. In fact, on several occasions, it has confused the participants, as the two key stock market indices — Sensex and Nifty — have behaved differently during the pre-open session lasting 15 minutes from 9 am.
For example, on September 27, the National Stock Exchange’s (NSE) Nifty jumped nearly 70 points to touch a high of 4,905.30 and closed around that level in the pre-open session, shows Bloomberg data compiled by Business Standard. On the same day, the Bombay Stock Exchange’s Sensex remained almost flat. Bloomberg data is available for the time between 9:07 am to 9:14 am. NSE and BSE did not respond to e-mails seeking data for the pre-open session.
An analysis of the data in the last three months showed divergence in the performance of Sensex and Nifty during the pre-open session on many other occasions, prompting experts to question its usefulness.
“People don’t take pre-open trading seriously. It’s not giving any direction to the market participants,” says Deven Choksey, managing director at Mumbai-based KR Choksey Shares & Securities. “Six-and-a-half hours of trading for the entire market doesn’t make sense. Rather than that, trading in derivatives on key indices like Sensex and Nifty should start when trading begins in SGX Nifty. These contracts can even be traded after market closes at 3.30 pm.” Trading in the SGX Nifty starts at 6.30 am IST.
In the pre-open session, the first eight minutes is used for collecting orders. There is a system-driven random closure of order collection period anytime between the 7th and 8th minute. The next four minutes are used for order matching and trade confirmation.
After that, there is three minutes of buffer period for transition from pre-open session to normal market.
At the time when pre-open session was introduced, there was an expectation that this would minimise opening volatility in prices of securities and allow for overnight news in securities to be suitably reflected in the opening price.
“Pre-open session is not very helpful in judging the market’s direction,” claims Ambareesh Baliga, chief operating officer at Way2Wealth Securities. “Instead of all the stocks, pre-open should be limited to Nifty and Sensex futures.” At present, pre-open trading takes place in Sensex and Nifty stocks. Adds a senior official of a domestic broking firm: “Pre-open session should be scrapped. It doesn’t make any sense. Even today, people look at SGX Nifty for direction.”
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