Commodity Exchanges Current Affairs - 2019
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The Securities Exchange Board of India (SEBI) has relaxed algorithm trading norms at commodity derivatives exchanges. The market regulator has raised limit of trading using algorithm trading process up to 100 orders per second by user from the existing limit of 20 orders per second.
The decision was taken after receiving representations from exchanges along with views of SEBI’s subcommittee- Commodity Derivatives Advisory Committee. SEBI has asked exchanges to ensure that limit provided by it is subject to its ability to handle load. Besides, it also has decided to do away with requirement of empanelment of system auditors by the exchanges for system audit of algorithmic trading.
Algorithmic trading in financial markets refers to transaction orders generated by using advanced mathematical models that involves automated execution of trade. It uses mathematical models and software codes to make transaction decisions on exchanges and execute them at high speed.
This technology-driven trading enables traders to take advantage of any profit making opportunities arising in the market much before a human trader can even spot them. It was introduced in India in 2009. At present, on National Stock Exchange (NSE), algorithm trades accounts close to 16% of all trades. On the Bombay Stock Exchange (BSE), it was 8.56% in January 2017.
Difference between algo trading and high frequency trading (HFT)
Both are often used inter-changeably, but they are not really same. HFT refers to high-volume orders executed within split-seconds to make immediate gains from market opportunities. HFT trading are often backed by algo trading, which spot trading opportunity.
National Multi Commodity Exchange (NMCE), India’s first demutualised online national multi-commodities exchange will merge with Indian Commodity Exchange (ICEX).
The merged entity will create India’s third biggest commodity exchange. The largest commodity exchange by volume is the Multi Commodity Exchange (MCX) followed by National Commodity and Derivatives Exchange (NCDEX).
This is the first merger deal in the commodity exchange space in India. It has been approved by the boards of both exchanges and is expected to be completed by December 2017, subject to regulatory approvals. In the merged entity, the ICEX will hold a 62.8% stake, while NMCE shareholders will own the rest.
The new exchange will offer a wide range of contracts, including bullion, oil, rubber, and other agri-commodities. It will also offer the world’s first diamond futures contract, which has already received in-principle approval from the marker regulator SEBI.
The merger will help ICEX to further strengthen its position in the country’s fast-growing commodity derivatives market. It will result in greater financial strength, the consolidation of clients and members, an enhanced product basket, and higher operational synergies.
Commodity trading in India
Commodity trading is an exchange where various commodities and derivatives products are traded. Most commodity markets trade in agricultural products and other raw materials and contracts based on them. These contracts can include spot prices, futures, forwards and options on futures. Other sophisticated products may include interest rates, environmental instruments, swaps, or ocean freight contracts.
Commodity trading in India has a long history. In fact, commodity trading had started in India much before it started in many other countries. However, years of foreign rule and Government policies had caused the commodity trading in India to diminish. It was restarted recently.
At present, India has six national commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivatives Exchange (NCDEX), National Multi-Commodity Exchange (NMCE) and Indian Commodity Exchange (ICEX), ACE Derivatives exchange (ACE) and Universal commodity exchange (UCX) apart from numerous regional exchanges.
Government had established regulatory body is Forward Markets Commission (FMC) in 1953. It was merged with the Securities and Exchange Board of India (SEBI) in September 2015.