Posted by: commoditywise | January 2, 2008

Commodities & Crazy Indians

I

ndians, like their counterparts in other parts of the world, also love to invest in, trade and speculate in commodities – on or off the exchange. And, believe it or not, they love to do so even on an international holiday…!!!  

Crazy is the only word one can think of for both the exchanges that offer trading platform and their members who utilize this platform even on an international holiday. What about the regulator Forward Markets Commission (FMC)..? At best we can say they would have been busy and happy like other normal not-so-crazy people partying while a small number of `boys’ made merry at the Indian commodity exchanges, especially in the evening trade from 5.00 pm to 11.55 pm – just five minutes short of the New Year the next day. 

This year the Happy New Year day, January 1, 2008 was on Tuesday. Normally, as per the usual custom the world over, this is one of the few days that is an international holiday and people – including traders of all hues and shades – think of just one word – ENJOY!! So, this year January 1, 2008 too was an international holiday, people across the globe enjoyed possibly to their best – sort of. Sort of, because in India and also overseas, a section of traders, punters and speculators in commodity markets preferred instead to push trade till hold your breath …till late in the mid-night up to 11.55 pm IST!! 

It will be interesting and revealing to see how Indian commodity traders traded what on two of the three nationwide multi commodity exchanges (NMCEs) – the Multi Commodity Exchange (MCX) and the National Commodity & Derivatives Exchange (NCDEX) on January 1, 2008: 

Number of traders logged in declined as the day turned into night …By 11 am 2,284 members had logged in, by 1 pm – 1,971, by 5 pm – 1,772, by 6.30 pm – 697, by 8 pm – 387, by 10 pm – 248 and by 11.55 pm only 109 traders were logged in.

And they pushed in more trades in the evening session…By 11 am – 6,514 trades were put in by the members who had logged in, by 1 pm this number jumped to 16,641 trades, by 3 pm number of trades climbed further to 23,683 trades; 5.00 pm – number of trades jumps to 39,689 trades, 6.30 pm – to 39,749; by 8.00 pm – 39,785; 10 pm – 39,816 and by 11.55 pm – 39,844 trades were introduced. See how the number of trades is relatively constant at around 39,600-39,800 after 5 pm!! 

Value of these trades was relatively constant in evening trades… 11.00 am – Rs 192 cr, by 1.00 pm – 507 cr, by 3.00 pm – 728 cr, by 5.00 pm – 1,242 cr, by 6.30 pm – 1,248 cr, by 8.00 pm – 1,251 cr, by 10.00 pm – 1,253 cr and by 11.55 pm – 1,255 cr!

What is more interesting, on January 1, 2008, Indian commodity traders were trading merrily in just four commodities – Gold, silver, Brent crude / crude oil and copper – that are known in India as international commodities.  

So, on an international holiday on January 1, 2008 Indian commodity traders were busy trading with their counterparts in overseas exchanges in just four international commodities!! Interestingly, majority of these trades as can be seen below were traded during the evening trading session on the MCX where the volume of trades in all the four commodities was (1) almost double that of the day trading, (2) relatively constant among small number of around 100 traders… at around 2,300-2,800 kg in gold; around 72,000-80,000 kg in silver; 1,200-1,600 in copper but the trading in Brent crude / Crude oil almost tripled in the evening trades on MCX to 327,500 barrels!! 

Gold (kg)          NCDEX / MCX

11.00 am          90 / 751

1.00 pm –          165 / 1478

3.00 pm            271 / 1876

5.00 pm            426 / 2165

6.30 pm            473 / 2,383

8 .00 pm           496 / 2,583

10.00 pm          506 / 2,734

11.55 pm          514 / 2,849 

Silver (kg)        NCDEX / MCX

11.00 am          425 / 11,980

1.00 pm –          885 / 49,455

3.00 pm            1,310 / 64,656

5.00 pm            1,760 / 69,920

6.30 pm            1,955 / 72,605

8 .00 pm           2,045 / 74,670

10.00 pm          2,170 / 77,165

11.55 pm          2,300 / 79,770 

Brent Crude     NCDEX / MCX /

Crude oil (in barrels)           

11.00 am          100 / 49,900

1.00 pm –          300 / 70,200

3.00 pm            600 / 103,200

5.00 pm            1,500 / 119,300

6.30 pm            1,900 / 140,100

8 .00 pm           2,000 / 221,200

10.00 pm          2,000 / 306,800

11.55 pm          2,000 / 327,500 

Copper (MT)

11.00 am          6 / 446

1.00 pm –          12 / 770

3.00 pm            28 / 1,130

5.00 pm            34 / 1,292

6.30 pm            37 / 1,374

8 .00 pm           38 / 1,461

10.00 pm          39 / 1,534

11.55 pm          40 / 1,630 

What is more, up to 5 pm, the distribution of value traded on both the exchanges was in the ratio of 35:65 on MCX and NCDEX…and hereafter comes the interesting switch in the value of trading after 5 pm to 11.55 pm – MCX has over 95 per cent of value traded while the balance is with NCDEX. 

And on an international holiday of New Year January 1, 2008, even when trading in agro commodities till around 5 pm was the highest on NCDEX, trading in the four international commodities was seen lopsided to say the least during evening trades on MCX… 

Time                             products            MCX / NCXDEX (in % terms)

10 am – 5.00 pm            AGRI                 13 / 87

10 am – 5.00 pm            Gold                  84 / 16

5 pm to 8 pm                 Gold                  86 / 14

8 pm – 10 pm                 Gold                  94 / 6

10-11.55 pm                Gold                  93 / 7

Almost same trend for  Silver  

10 am – 5.00 pm           others              95 / 5

5 pm to 8 pm                Others                 99.81 / 0.19

8 pm – 10 pm                 Others                98 / 2

10-11.55 pm                Others                  95 / 5 

On December 17, 2007, yours faithfully had mentioned in the post titled India’s narrow commodities, evening trades spoil futures game that … “these are known to be pure speculation and only arbitrage between domestic and international commodity exchanges, and are illegal too”. 

The above commodity trading figures of just one day – January 1, 2008 – substantiates my observation that calls for urgent attention of both the regulator and the government. The evening trades are concentrated among the small number of traders and that too on just on MCX.

There is much more to commodities than just trading, and so there is too much at stake in the Indian commodity derivatives market. Therefore, the surging evening trading / unhealthy and unwarranted speculation / arbitrage between domestic and international commodity exchanges surely needs to be curbed.  

So, as we enter in the New Year, we surely hope that the concerned regulators and the government would take note of this unhealthy trend in Indian commodity trading that has given a tarnished image on the Indian commodity futures arena, more so when options on commodity futures are said to be on the list of some important clearances awaiting the government nod.  

Two other related posts would also be interesting https://commoditywise.wordpress.com/2007/12/10/rising-monopoly-in-india%e2%80%99s-commodity-futures-trading/ https://commoditywise.wordpress.com/2007/11/26/evening-commodity-trade-%e2%80%93-healthier-with-restrictions/

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