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The Securities and Exchange Board of India (SEBI) has allowed the Indian stock exchanges to extend trading hours from 9am to 5pm. This may put stress on human resources and infrastructure of broking firms and mutual funds. More importantly, it will not serve the real purpose—help the National Stock Exchange (NSE) to win back the trading that has got exported to the Singapore Stock Exchange (SGX).
SGX has been trading in Nifty futures for over a year now and its volumes have grown significantly. To win back a part of the SGX volumes, the NSE has been lobbying with SEBI to extend trading hours. SEBI has readily agreed to the NSE idea. But this will not mean much for the NSE.
According to the SGX data, Nifty futures generated 20% volumes on the SGX out of the 62 million contracts of all major Asian indices traded on it last year. SGX has been taking away a major portion of NSE’s volumes, which may be a cause of worry for the Indian bourse. SGX is open for trading between 6.30am and 6pm IST.
Raamdeo Agrawal, co-founder and director, Motilal Oswal Financial Services Ltd, said, “Since SGX Nifty is taking away a lot of volume trade from the NSE, the extended trading hours will help Indian traders and investors to trade in the domestic markets rather than in Singapore markets.”
However, trading in SGX futures took off mainly because SEBI banned participatory notes in late 2007 which prevented hedge funds from entering and exiting the Indian market. It had little to do with trading timings. Foreign investors also prefer to trade in Nifty futures on the SGX because trading costs in India are higher, thanks to securities transaction tax (STT) and stamp duties charged. In Singapore, the transaction costs are only two to three basis points of the trade. One broker, who did not want to be identified, categorically said the pace at which the Nifty futures’ volume on the SGX is growing may come down but the extended hours would not curb trading of Nifty futures on the SGX.
The irony is that SGX trades in Nifty futures only under a licence from the NSE. If the NSE wants to kill SGX’s trading in Nifty futures, it can easily terminate its agreement with SGX. For some reason, it does not want to do that but wants the entire Indian market to follow its wish of nine-to-five trading.
As one market-player told Moneylife, “Frankly I don’t see any constraint in not being able to do anything which one wants to do within the current trading hours. For brokerages, profits will go up because of the extended hours but, from the institutional side, trading might not go up because they have an ‘x’ amount of trades to be done which can be done within the current trading hours.”