Early morning blues

December 15, 5 pm: Stock brokers and senior officials of the Bombay Stock Exchange (BSE) gather on the 1st floor convention hall of Phiroze Jeejeebhoy Towers (which houses the Exchange) for the monthly open house session to discuss the extension of trading time by 10 minutes.

The brokers don't think it is a good idea as this will provoke rival bourse, the National Stock Exchange (NSE), into doing something similar, thereby negating any advantage. The BSE top brass sticks to its guns. Sure enough, one day later, the NSE reacts — and in style. It proposes an extension of trading hours, not by just 10 minutes but by 55 minutes—an opening bell of 9 am is suggested. The BSE has little option but to follow.

After some to-ing and fro-ing—and some intervention from the market regulator, the Securities and Exchange Board of India (SEBI)—the two Exchanges jointly agree to commence trading at 9 am from January 4. At the time of writing, the decision to extend trading hours and the prospect of more business didn't exactly result in exultation on Dalal Street. The Association of National Exchanges Members of India (ANMI) has told both Exchanges to put on hold their decision.

The BSE Brokers' Forum suggested the setting up of a committee comprising various stakeholders to deliberate the matter and keep in abeyance the decision to extend timings. The broking community is split down the middle, with the big-time brokers—particularly those who do proprietary and arbitrage trading —in favour of extended trading hours, and the medium and small brokers against it. The camp in favour sees this as an opportunity to increase trading volumes and integrate more closely with international markets.

Those against a 9 am opening are wary that the increase in volumes may not be that big enough to cover the step-up in operating costs. Whilst officials of BSE and NSE have not come out openly with any strong reason for extending trading hours, those close to the development say the seeds of the idea were sown after the volumes of Nifty Futures started soaring on Singapore's stock exchange, SGX, from end-2007.

This was a result of SEBI's decision to tighten know-your-client norms for foreign institutional investors (FIIs) in Indian equities by imposing restrictions on participatory notes (P-notes or instruments that foreign investors not registered in India would use to buy Indian stock). Many of these FIIs chose to trade on the SGX instead. So, one of the reasons to begin at 9 am is to synchronise trading with the SGX, which is two-and-ahalf hours ahead of India time.

However, there's one section of brokers who believe that getting the two Exchanges in sync will actually benefit the SGX more than NSE. "Once the market opens early, volumes on the SGX will increase as Singapore investors use Nifty as a reference price to trade," says Rakesh Jain, Director, Frontline Capital and a former President of ANMI. An NSE official, who declined to be named, counters that the decision was taken following feedback from stock brokers.

However, a survey of 480 BSE and NSE brokers by the BSE Brokers' Forum reveals that almost 80 per cent are not in favour of an extended trading time. Another reason given by the NSE official is that starting early will align the Indian stock markets with other financial markets like debt and currency, both of which open at 9 am.

BSE officials give their reason for initially deciding to open 10 minutes early (at 9.45 am instead of 9.55 am)—that's because Hong Kong and Singapore traders go to lunch at 10 am, India time, for 30-45 minutes. Opening 55 minutes earlier, however, is a totally different ballgame. Brokers point out that the early start throws up various operational issues.

The biggest concern is the physical stress employees will face. Currently, most of the broker's staff— which includes, besides the analysts, departments like technology, risk management and computer operators who punch the trades—comes to office 90-120 minutes before trading begins. With the new timings, employees will have to begin trooping in from 7 am onward. The employees' crib is that they will be working an extra hour without getting paid for it.

"One should have looked into the socio-economic benefit before deciding on early trading," says Uttam Bagri, Secretary, BSE Brokers' Forum. Adds Deena Mehta, Managing Director, Asit C. Mehta Investment Intermediaries: "Working from 6.30 am to 6 pm (including commuting time) will take a toll on the quality of advice given by these experts."

Brokers are also apprehensive of adding extra costs by hiring more people (to work in shifts ), that too at time when there's still an element of uncertainty in stock valuations. Also, if stock markets overseas seem to be working longer hours, it's also because many of them take a lunch break. Most stock exchanges in Asia work in two sessions: Pre-lunch and post-lunch. Singapore, for instance, closes for lunch between 12.30 and 2 pm.

Dinesh Thakkar, CMD, Angel Broking, acknowledges that servicing clients will be a challenge but investors will benefit as they will get more time to buy and sell shares. Institutional investors, too, think a 9 am start will benefit the stockmarket and investors. "The extended trading hours will give an edge to Indian markets to participate in the live environments and also will lead to more volumes and increase the depth of the market," says Vikram Kotak, Chief Investment Officer, Birla Sun Life Insurance.

There will, however, be pain in the short-term by way of process issues, declaration of net asset values (NAVs) and client servicing, but this can be sorted out with efficient use of technology. The days ahead will reveal what wonders 55 minutes of extra trading time can work for the market and the players in it.

THE LONG AND SHORT OF IT

The Argument for an early start...

• Better integration with international markets
• Higher trading volumes and therefore more business
• Align trading time with forex and debt markets
• Fresh job creation because of increased volumes 

...and the Case against it

• Longer working hours mean increased stress
• Increase in operating costs won't match increase in volumes
• Banking infrastructure not adequate for early funds transfer
• Will attract more traders and speculators than investors