Commodities

Commodity derivatives trading should close at 5 pm, says BME

PALAK SHAH Mumbai | Updated on April 03, 2020 Published on April 03, 2020

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Bombay Metal Exchange (BME), one of the oldest and largest bodies of non-ferrous metal trade industry in India, said that commodity market timing should not be extended beyond 5 pm till the Covid-19-led lockdown is ended. Sandeep Jain, Senior Vice President, BME, told BusinessLine that derivatives trading on the commodity exchanges will not lead to any effective price discovery till the physical markets are shut in the country and extension of timing in the current situation would be an unnecessary burden.

“In India, there is delivery-based settlement in the commodity markets. But no delivery can take place since physical markets are shut in India. Also, currently there is no actual sense of demand and supply. So, there is no assessment of the hedging position that one can take. In such a scenario, what is the meaning of keeping open derivative markets trading till midnight?” wondered Jain.

On April 2, BME had tweeted from its official handle against extending commodity derivatives trading till midnight. In India, commodity derivatives trading takes place for the longest number of hours globally ― from 10 am to 11.50 pm. “BME recommends maintaining restricted timings for exchange trading operations since no spot prices are available in the market due to the Covid-19 lockdown.”

On March 26, following an order from SEBI, commodity exchanges cut down the commodity derivatives market trading hours to 5 pm, against the earlier practice of midnight.

This was after the Commodity Participants Association of India (CPAI) urged SEBI and the government to cut short trading hours as brokerages were facing trouble in keeping their operations running smoothly. However, CPAI in April came under pressure from the broking community and requested SEBI to revert to the practice of trading till midnight. For a few days, brokers witnessed falling trading volumes. Giving a reason for its sudden U-turn, CPAI said it had conducted an internal survey and found that majority wanted markets open till midnight so that India could trade when the US markets opened at 7.30 pm (India time), taking a cue from there. Algorithm-based automated trading, which contributes widely to intra-day trading in commodity markets, generates huge volumes. Algo-related activity is high when the US markets open, as price cues for intra-day traders in bullion and oil mainly come from the US markets. Till some time ago, commodity exchanges officially took their price quotes from the US exchange but SEBI discontinued this practice and asked the exchanges to link their prices to domestic settlement rates. But since the domestic physical markets across segments are currently shut, such price discovery was not possible, experts said.

In the equity markets, National Stock Exchange (NSE) brokers body ANMI has requested SEBI to slash the trading time to 2 pm from the current 3.30 pm.

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Published on April 03, 2020
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