The National Stock Exchange (NSE) in India has announced an extension in trading hours for interest rate derivative contracts. According to a circular released by the NSE, the trading hours for interest rate derivative contracts would be extended to 5:00 pm on expiry day, starting from February 23, 2023. The change in timings is aimed at converging the trading hours of interest rate derivatives with the underlying market timings. It is important to note that there will be no change in trading hours for other interest rate derivative contracts.
Furthermore, all existing expiry contracts with an expiry day beyond February 23, 2023, and all new expiration contracts introduced thereafter will be made available for trading until 5 pm on expiry day. The final settlement price computation mechanism will remain unchanged. The exchange has clarified that there are no plans to extend the trading hours in the equity segment at present.
The Securities and Exchange Board of India (SEBI) came out with a standard operating procedure (SOP) in January, asking stock exchanges to inform stakeholders about trading disruptions within 15 minutes of such occurrences and extending the trading time by one-and-a-half hours in certain outage conditions. The SOP came amid discussions about extending the trading hours in the equity segment.
The markets regulator had allowed stock exchanges to set their trading hours in the equity derivatives segment between 9 am and 11:55 pm in 2018. The trading hours for the commodity derivatives segment are presently fixed between 10 am and 11:55 pm. At present, the domestic stock markets are open between 9:15 am and 3:30 pm.
Market experts believe that longer trading hours in the Indian stock markets can potentially decrease the overnight risk arising from global information flow. An extension in trading hours would enable Indian investors to react to global market movements and other news developments that may occur outside Indian trading hours. In turn, it could reduce the risk of price gaps that occur when the market opens after a significant news event outside Indian trading hours.
While the extension in trading hours could be beneficial to investors, there are some concerns about the impact on market participants. It is important to ensure that market participants, including traders, brokers, and exchanges, are adequately equipped to handle the longer trading hours. The market infrastructure needs to be robust enough to support extended trading hours and ensure that there are no disruptions.
Moreover, the extension in trading hours could result in additional costs for market participants, such as increased expenses for infrastructure, technology, and human resources. This could create a barrier for smaller market participants who may not have the resources to bear the additional costs.
In conclusion, the NSE’s decision to extend trading hours for interest rate derivative contracts is a step towards converging the trading hours of interest rate derivatives with the underlying market timings. While longer trading hours could benefit Indian investors, it is important to ensure that the market infrastructure is robust enough to handle extended trading hours and that market participants can handle the additional costs. The market regulator and exchanges should work together to balance the benefits of longer trading hours with the need for a safe and efficient market.
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