Extended Trading Hours for SEBI in 2023. What are the risks?

The Securities and Exchange Board of India (SEBI) recently announced its decision to extend the trading hours of Indian stock exchanges by one and a half hours in 2023. This move is expected to make Indian markets more attractive to global investors and to improve liquidity and market activity. In this blog, we will explore the potential benefits of this decision.

Extended Trading Hours: A Boon for Retail Investors

The extended trading hours are likely to be beneficial for retail investors who find it difficult to participate in intra-day trading due to their busy schedules. With the extended trading hours, it will be easier for them to take advantage of intraday opportunities. Retail investors can now take more informed decisions as they have more time to analyze market conditions, which is likely to enhance their trading experience.

Improved Liquidity and Market Activity

Institutional investors such as mutual funds and foreign portfolio investors are expected to benefit from the extended trading hours. Since these investors prefer to invest larger amounts of money, the extended trading hours will provide them with more time to complete their transactions. This could lead to greater liquidity in the Indian markets. Increased liquidity can enhance the overall trading activity, making the Indian stock markets more vibrant.

Reduced Impact of Market Volatility

The extended trading hours could help reduce the impact of market volatility. Since investors will have more time to complete their transactions, they can take advantage of trading opportunities and reduce their exposure to market movements. This could help reduce the risks associated with investing in the Indian markets. For instance, suppose a company announces its quarterly results after market hours, and the market reacts strongly to the news the next day. In that case, investors can quickly adjust their positions during extended trading hours instead of waiting until the next day.

Efficient Trading

The extension of trading hours could also lead to more efficient trading. By giving investors more time to analyze and trade stocks, they can make more informed decisions and reduce the chances of making costly mistakes. This could help improve the efficiency of the Indian stock markets. More efficient trading could also lead to a more accurate price discovery process, which is beneficial for all market participants.

Basically, SEBI's decision to extend the trading hours of Indian stock exchanges is expected to have a positive impact on the Indian stock markets. The extended trading hours will make Indian markets more attractive to global investors, enhance the trading experience of retail investors, improve liquidity and market activity, reduce the impact of market volatility, and make trading more efficient. This decision is a step in the right direction toward making the Indian stock markets more robust and competitive.

What are the risks?

While the decision to extend trading hours for Indian stock exchanges is expected to bring several benefits, it also comes with some potential risks. It is important to consider these risks before making a final assessment of the impact of the decision.

1. One of the potential risks is the increased stress on market infrastructure. Trading volume and order flow could increase significantly during extended trading hours, which could put additional pressure on the exchanges' systems and increase the risk of technical glitches and outages. For example, in 2015, the Singapore Stock Exchange extended its trading hours but experienced technical issues that resulted in a three-hour shutdown. Similar incidents have occurred in other markets as well.

2. Another risk is the potential for increased volatility during extended trading hours. With more time to react to news and events, investors may place orders that could result in wild swings in prices. This could lead to large losses for investors who are not prepared for sudden market movements. For example, in the US, the introduction of pre-market and after-hours trading has led to increased volatility in the markets during those times.

3. A third risk is the potential for increased stress and burnout among market participants. Longer trading hours mean more time spent analyzing the markets and making trading decisions. This could lead to increased stress, anxiety, and burnout among traders and investors. For example, in Japan, where stock market hours are longer than in most other countries, there have been concerns about the toll that long working hours can take on the mental health of traders and investors.

While the decision to extend trading hours for Indian stock exchanges is likely to have many benefits, it is also important to consider the potential risks involved. To mitigate these risks, it will be important for market participants to take steps to ensure that they are adequately prepared for extended trading hours, and for exchanges to invest in robust systems and infrastructure that can handle the increased order flow.