The move by the Singapore Stock Exchange (SGX) to extend trade timings in Asian equity derivatives by 65 minutes from today may eventually hurt markets here.
India’s premium benchmark equity index, the S&P CNX Nifty, also the fastest growing index on SGX, will be traded for 16 hours on that exchange, compared to the six-and-a-half hours that it traded on the National Stock Exchange (NSE) in India. The SGX will be traded from 6.30 am to 10.30 pm IST.
This, say market experts, may gradually see an increase in Nifty volumes on SGX. This is the second time in the past six months that SGX has extended trading in Asian equity derivatives by over an hour and analysts believe that within the next six months, index futures on SGX will be traded for 23 hours in a day.
The Nifty index covers 23 sectors of the Indian economy and over 60 per cent of the total market capitalisation of NSE. While the turnover of the Nifty index on SGX may not be alarming, the average open interest position on the exchange is around 30 to 40 percent of the entire open interest position in the Nifty index, including that on NSE.
According to an analyst, while the ban on participatory notes (PNs) in India was one reason in 2007-08 for the shifting of huge derivative volumes to Singapore, this time it could be spurred by the longer hours of trading.
“Nearly 10 hours of extra trading time may give a huge leverage to large hedge funds to move markets in case of any major economic event. The way world markets are shaping, the event may not be too far when domestic players will have to wait for Indian markets to open, while foreign players may have already played their game on SGX,” said a senior analyst at a Mumbai-based research house. While volumes in SGX Nifty futures declined by over 50 per cent to 1.7 million contracts during the first quarter of financial year 2009 as a result of the market slowdown, the index had recorded a whopping 762 per cent growth in 2008 after the PN ban.
In 2008, Nifty futures generated 20 per cent volume on the exchange and, on an average, 12.43 million contracts of Nifty futures were traded in 2008 on SGX, compared to 1.44 million contracts in 2007.
During the same period, the volumes of other Asian indices — SGX Nikkei 225, SGX MSCI Taiwan and SGX MSCI Singapore — grew a mere 16-24 per cent. NSE’s contract to list Nifty on SGX may be due for renewal in the coming months.
Both the Bombay Stock Exchange and NSE had come under criticism from domestic market participants for recently opening market trading at 9 am instead of 9.55 am.
However, keeping the growth and developments of global markets in mind, some of the large stockbrokers, including ICICI Securities, India Infoline and Edelweiss Capital, at a meeting with top NSE officials recently, asked to let index futures trade for 23 hours in a day.
“It may not be appropriate to extend trading in cash markets beyond a certain point, as globally cash markets do not trade for more than six to seven hours. However, exchanges and the regulator will have to allow 23 hours trading in index futures to catch up with the world and ensure there is infrastructure in place for this,” said a broker who had attended the NSE meeting.