The Future of Stock Market Trading Hours: A Shift Towards 24/5 in the Indian Context

Stock markets worldwide have traditionally followed fixed trading hours, ensuring liquidity, efficiency, and structured participation. However, with technological advancements and globalization, the concept of extended trading hours has gained momentum. The United States has been at the forefront of this shift, with exchanges like NYSE and NASDAQ exploring nearly round-the-clock trading. This move raises crucial questions about its feasibility, benefits, and challenges, particularly in an Indian context.

The Evolution of Trading Hours in Global Markets

Historically, stock exchanges operated within limited hours. Until 1952, the US stock market functioned for five and a half days a week. However, a shift towards a five-day trading week led to an extension of weekday trading hours. Over the years, market hours gradually increased, with the New York Stock Exchange (NYSE) moving its closing bell from 3:30 p.m. to 4 p.m. in 1974 and opening 30 minutes earlier at 9:30 a.m. in 1985. More recently, in October 2024, NYSE Arca announced plans to extend trading to 22 hours a day on weekdays, further pushing the boundaries of market accessibility.

NASDAQ has also joined the trend, with its President Tal Cohen revealing intentions to enable 24-hour trading on weekdays. The catalyst for this shift lies in the changing nature of stock market participation. Traditional floor trading has been replaced by digital platforms, making stock trading as simple as a few taps on a smartphone. With increased investor demand and the need for global market alignment, extended trading hours have become a logical next step.

Why Are Markets Moving Towards 24/5 Trading?

Increased Retail and Global Participation

The stock market is no longer confined to institutional investors. Retail investors have gained significant influence, and many face time constraints due to their professional commitments. For them, after-hours trading presents a convenient opportunity to engage in the markets at their convenience.

Additionally, globalization has led to a surge in cross-border trading. Foreign investors are actively participating in markets outside their own countries. For instance, as of June 2024, foreign holdings of US equities reached $17 trillion, a staggering 97% increase since 2019. A significant portion of these holdings comes from the Asia–Pacific region, where investors are keen on US markets, particularly in sectors like technology and healthcare. However, the challenge of different time zones means these investors often miss out on key market movements. Extended trading hours offer a solution, allowing them to react to global events in real time.

Improved Price Discovery and Market Efficiency

A fundamental aspect of financial markets is price discovery—the process of determining the fair value of securities based on market conditions. The longer the market operates, the quicker stock prices can adjust to breaking news and events. This minimizes overnight gaps and ensures that information is reflected in stock prices almost instantaneously, reducing potential inefficiencies.

Revenue Growth for Stock Exchanges

Stock exchanges generate revenue through transaction fees, and increasing trading hours naturally translates to a higher number of trades. More trading means greater fee collection, boosting the profitability of exchanges. Given the rising competition among global stock exchanges, adopting extended hours becomes a strategic move to retain market participants and prevent capital from shifting to alternative platforms, including cryptocurrency exchanges.

Challenges of a 24/5 Stock Market

Liquidity Concerns and Market Efficiency

Despite the apparent advantages, stock markets have traditionally adhered to fixed trading schedules for a reason—liquidity. A structured market ensures that buyers and sellers are available in sufficient numbers, facilitating smooth order execution. If trading is stretched across 24 hours, liquidity could become thin during non-peak hours, leading to higher bid-ask spreads and erratic price movements.

Fixed market hours encourage what is known as “endogenous behavior.” Traders adjust their actions based on predictable market events, such as the closing bell, leading to a surge in activity that enhances liquidity. Without a fixed closing time, market participation could become sporadic, reducing efficiency and increasing volatility, particularly in stocks with lower market capitalization.

Corporate Announcements and Market Stability

Companies strategically time their earnings releases and major announcements to prevent excessive market fluctuations. Typically, financial reports are published before or after regular trading hours to allow investors adequate time to process information. With 24/5 trading, markets would react instantaneously to every announcement, increasing the likelihood of panic-driven buying or selling. This could lead to extreme volatility and create an unstable investment environment.

Operational and Settlement Challenges

Unlike cryptocurrencies, which operate on real-time settlements, stock markets follow a structured settlement cycle. In the US, trades currently follow a T+1 settlement system, meaning transactions settle the next day. India, on the other hand, has already begun experimenting with T+0 settlements for select stocks. However, extending trading hours indefinitely complicates the settlement process. Exchanges need a window to conduct clearing, reconciliation, and system maintenance. Without sufficient breaks, ensuring operational stability becomes challenging.

Moreover, extended hours necessitate additional staffing, including traders, brokers, compliance officers, and IT personnel, increasing operational costs. For stock exchanges, the cost-benefit equation needs careful evaluation before committing to round-the-clock trading.

The Indian Perspective: Is 24/5 Trading Feasible?

The Current Structure of Indian Stock Markets

The Indian stock market, governed by the Securities and Exchange Board of India (SEBI), follows a structured schedule. The National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) operate from 9:15 a.m. to 3:30 p.m. for equity trading, with separate time slots for derivatives and commodities. After-market trading is available, but only within limited hours.

India has already taken steps towards extending market hours. In 2018, SEBI allowed extended trading in equity derivatives till 11:55 p.m. However, the adoption has been gradual, with mixed participation levels. The feasibility of 24/5 trading in India depends on multiple factors, including investor demand, market liquidity, infrastructure readiness, and regulatory considerations.

Potential Benefits of Extended Trading in India

1. Alignment with Global Markets: Longer trading hours would enable Indian investors to react to international market developments in real time, minimizing overnight price gaps.
2. Increased Retail Participation: Flexible hours could attract more retail investors who are currently restricted by work commitments.
3. Higher Revenue for Exchanges: As seen in global markets, extended hours could boost trading volumes, benefiting stock exchanges and market intermediaries.

Key Challenges in the Indian Context

1. Liquidity Distribution: India’s equity market, while growing, still sees significant trading concentration during peak hours. Spreading liquidity over 24 hours could lead to inefficiencies.
2. Operational Costs: Maintaining a 24-hour trading environment requires extensive resources, including cybersecurity measures, surveillance systems, and compliance personnel.
3. Regulatory Concerns: SEBI and RBI would need to establish clear frameworks for settlement cycles, trading surveillance, and risk management to prevent market manipulation and instability.

While the concept of 24/5 trading is gaining traction globally, its implementation in India requires a measured approach. The success of extended trading hours depends on maintaining liquidity, minimizing volatility, and ensuring seamless market operations. A phased approach, starting with longer after-market trading hours and assessing market response, could be a prudent strategy.

The future of stock market trading lies in balancing accessibility with efficiency. While technological advancements and globalization make extended hours appealing, the core principles of market structure must not be compromised. Whether India will embrace round-the-clock trading remains to be seen, but the evolution of market hours is undoubtedly an area of keen interest for regulators, investors, and financial institutions alike.