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Extended Trading Hours Aren't That Bad

Brokers oppose the new trading hours starting 9 AM from Jan 4, 2010:

In a statement issued in Mumbai, the BSE Brokers Forum said it opposed the move as there was no clear benefit for traders, stockholders
, institutions and retail investors.

The forum said it would submit a memorandum to Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee and seek meetings with the heads of both the BSE and the NSE to air their concerns.

“If the exchanges start operating at 9 a.m., I need to open my office at least by 7.30 a.m.,” said Binay Kumar Agarwal, a director of the Calcutta Stock Exchange (CSE).

“The infrastructure is not yet ready for trading to begin at 9 a.m. If I find my broadband connection is not working, I cannot get an engineer to fix it so early. Besides, banks don’t operate at 9 a.m.”

Added gastro-enterologist Indronil Saha: “This extension of trading hours will add to the stress, which will lead to gastro-enterological problems.”

The bank operation note is well taken but honestly, brokers don’t need banks to be open when they operate in the morning. For all proper settlements, the last evening should be more than enough.

The commodity futures markets are open till VERY late in the evening; 11:30 pm, and most big brokers keep their offices open for the commodity market times – so that is no great shakes.

Third, and importantly, why do Indian brokers let people buy shares without putting full cash down? I don’t mean futures. I mean cash trades – you can put Rs. 10,000 down and buy Rs. 1 lakh worth of shares. The broker allows you to square this off intra-day. This is ridiculous 10X leverage – much higher than what you get in the futures markets, where the margin is determined by the exchange and is about 5x for index and 2-3x for stocks. This is to facilitate intraday trading, basically, squaring off a trade intra-day before the market close; it’s not a facility provided by the exchange, but brokers are allowed to give it to their clients, if they can “risk-manage” it.

If you think I’m digressing, think again – this is a major reason why brokers don’t want to change timings. When they have to handle margins themselves, they need banks open and all that jazz; but a central clearing agency can do with much lesser times and more clear upfront margin handling processes.

If you make brokers pay up full cash while buying or selling shares, there will be less settlement issues in the cash market. Intraday shorting should also need the full amount upfront. Sure, the speculators will run away, but they belong in the futures markets.

Lastly, extending trade timing is useful. Our brokers were a bunch of thieves. When there was no electronic trading, you would always get the high of the day when buying and the low when selling. What you want is clean, clear trading and the best way to do that is to put the orders in yourself – which for most of us is not possible, because work intervenes. Extending market time to say 9 p.m. will help get more regular people on board.

Some people say it will increase speculation. So what? Let it. People who think of this as a gambling den will lose money and go away, specially if there is no leverage available in the cash markets (futures are expensive enough to not be useful for the dabbler). My point is – keep markets open, and the initial madness will sort itself out. Look at the US futures markets – they trade nearly 23 hours a day, and forex 24 hours a day, but they’re okay.

We must improve our banking system, for sure – transactions should be possible electronically at any time of the day. That isn’t such a big problem, and the RBI should speed things up, or at least allow collateral based transfers.

The important thing to understand is that investing/trading is a boring process. Keeping markets open longer don’t make them exciting. They make them available.

Also read Ajay Shah’s “The Trading Hours Controversy“.

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