First of all let us understand what exactly has changed. As per Securities and exchange board of India circular dated 4th May 2018, SEBI is now allowing the exchanges to set up trading trading hours for equity derivatives between 9 AM to 11:55 PM. This means that the exchanges like BSE and NSE can now have the markets open till 11:55 PM only for the equity derivatives segment. The circular also states that, the exchanges will have to take a prior approval by submitting a detailed proposal including the framework for risk management, settlement process, monitoring of positions, availability of manpower, system capability, surveillance systems, etc.
As per my understanding below are some of the pros and cons in case the market timings are extended.
- The most important aspect would be that this will help the markets to cover the trading hours for European exchanges and NYSE as well. If Indian markets are open during these hours, the volatility due to events happening over the globe would be covered during the market open hours and we may see less gap up and gap down opening which happen due to global events.
- With increased timings of the derivatives market, the participation will increase as the working professionals with 9 AM to 6 PM kind of jobs will also have some time to trade.
- Apart from volatility due to global events there are local events like result announcements post market hours which will now happen during market hours and again help to reduce gap up and gap down opening due to good and bad results.
- With increased trading hours, one may expect rise in volumes and any rise in volumes would bring in more revenue to the exchanges.
- While increased timings provide a bigger window to trade, the volatility index can go either way and we may see sudden spikes in the prices due to this.
- Since the extended hours are only for the derivatives segment and not for equity delivery (cash segment), this may result in creating an arbitrage between prices in cash market and F&O segment. Such arbitrage may be a risk for small investors as they will not be able to make quick entry/exit and will not even know the reason for sudden fall and then sudden rise in prices.
- Technical risks like server issues will have to be taken care as extended market hours would require very strong and reliable infrastructure for longer duration of time each day.
While these are just a few of the points which I can currently think of, there may be various other aspects to it. Do let me know your thoughts in the comments section below. Also let me know if you would like to read about any specific topics that I may pick up to write an informative article.
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