The Securities and Exchange Board of India (SEBI) has given its green light for stock exchanges to extend trading hours for equity derivatives segment till 11.55pm effective October 1, 2018, a move that will bring it in-line with commodities derivatives segment.
“With a view to enable integration of trading of various segments of securities market at the level of exchanges, it has been decided to permit stock exchanges to set their trading hours in the equity derivatives segment between 9.00am and 11.55pm, similar to the trading hours for commodity derivatives segment, which are presently fixed between 10.00am and 11.55pm,” SEBI said in a notification on Friday.
An equity derivative is an instrument where the underlying assets are based on stocks and the value fluctuates with the changing share price of the underlying equity. Futures and Options are among the common equity derivatives.
A stock exchange and its clearing corporation will need to put in place risk management systems and infrastructure, commensurate with the trading hours, in order to start the extended trading in derivatives, according to SEBI.
The exchanges will also need to apply for prior approval from SEBI and submit a detailed proposal including the framework for risk management, settlement process, availability of manpower, system capability and surveillance systems among other things.
Exchanges have welcomed the move, which they say will bring Indian stock markets on par with their global counterparts.
“Globally, the derivative exchanges are already following the extended trading hours. The introduction of the extended hours is a positive development and will bring Indian market in line with international market and Indian commodity derivative markets,” said Ashishkumar Chauhan, MD and CEO of BSE.
For equity brokerages, which already offer commodity trading, it will mean aligning their workforce so that clients trading in equity derivatives can also be serviced through the extended period.
“Most broking companies already keep their offices open as the commodity markets were open till 11.55pm. Hence, the extension of trading hours for another segment in the market would allow broking firms to right size their operations for all segments,” said Prasanth Prabhakaran, CEO of Yes Securities.
The finer details like whether extended trading in securities in equity derivatives will be allowed till the time there is trading in the underlying stock, or will extended trading be only allowed in equity indexes, will have to be seen, said Ashish Rathi, head of compliance at HDFC Securities.
SEBI's move to extend the trading hours for equity derivatives follows the regulator's approval in December 2017 for unified exchanges.
On December 28, SEBI had given its approval for universal equity and commodity exchanges from October 2018. The regulator had proposed a two-stage process; integration at the intermediary level in phase I and then in the second phase taking steps enabling a single exchange to operate in various segments like equity, equity derivatives, commodity derivatives, currency derivatives, debt and interest rate futures.