Sebi eases Algo trade rules in commodity exchanges

In a bid to relax algorithm trading norms at commodity derivatives exchanges, markets regulator Sebi today raised the limit to process up to 100 orders per second by a user for such trade from the existing limit of 20 orders per second.

The decision has been taken after receiving representations from exchanges along with views of Sebi’s sub committee — Commodity Derivatives Advisory Committee.

“It has been decided to permit exchanges to relax the limit on the number of orders per second from a particular … User-ID up to hundred orders per second,” Securities and Exchange Board of India (Sebi) said in a circular.

The markets regulator asked exchanges to ensure that the limit it provides is subject to its ability to handle the load.

Besides, the regulator has decided to do away with the requirement of empanelment of system auditors by the exchanges for system audit of algorithmic trading.

Algorithmic trading or ‘algo’ in market parlance refers to orders generated at a super-fast speed by use of advanced mathematical models that involve automated execution of trade, and it is mostly used by large institutional investors.

 

 

 

 

Sebi allows options contracts in commodity trading.

Exactly a year after strengthening regulation of the 13-year-old commodity derivatives market, the Securities and Exchange Board of India (Sebi) has taken the first steps towards its growth by allowing exchanges like MCX and NCDEX to launch options in commodities.

Also, it has expanded the list of notified commodities that exchanges can launch by adding to it eggs, diamonds, skimmed milk powder, tea, cocoa, pig iron, biofuels and brass.

Sebi will spell out the details of the type of options and the products on which they can be launched in due course. An advisory committee constituted by Sebi after erstwhile commodity regulator FMC was merged with it on September 29 last year had recommended launch of gold and refined soya oil options initially.

The introduction of new commodity derivatives products is considered to be conducive for the overall development of the commodity derivatives market, attracting broad base participation, enhancing liquidity, facilitating hedging and bringing in more depth to the commodity derivatives market,” Sebi said in a circular. “The commodity derivatives exchanges willing to start trading in options contracts shall take prior approval of Sebi for which detailed guidelines will be issued in due course.”

Other important regulations are allowing equity exchanges like NSE and BSE to launch commodity futures segment and commexes like MCX and NCDEX to launch equities and currency segments.

Sebi will also enable margin fungibility by permitting merger of a commodity subsidiary of a brokerage with itself. In time, other products, like indices, and institutional participants like mutual funds, FPIs etc could be allowed to deepen the market.

Indeed options comprise 75% of NSE’s total derivatives turnover of Rs 404 lakh crore in the fiscal year so far. Average daily turnover of equity derivatives on NSE has been Rs 3.31 lakh crore against just Rs 25,000-30,000 crore for MCX, NCDEX and NMCE, where only futures are traded and institutional participation disallowed.

Since delivery is envisaged, the type of option could be American style though markets have crossed their fingers. “European styled options are being traded in Indian equity and currency derivatives markets, American styled options for commodities are in vogue in developed markets like CME. We are awaiting guidelines from Sebi to decide on the product type,” said Mrugank Paranjape, MD, MCX.

“For farmers, it (options) will be a game changer,” said Samir Shah, MD, NCDEX. “It would help them to sell their produce in the derivatives market and thereby get the benefit of price protection in case the price falls below their cost of production and also derive the benefit of any rise in the price. Options are also a much better hedging instrument as compared to futures for hedgers.”

Source – The Economic Times.(September 29, 2016)

 

BSE plans trading in commodity derivative segment

Leading bourse BSE on Saturday has said that it plans to launch commodity derivative segment which will allow trading in metals and has approached market regulator Sebi for approval.

“BSE plans to set up a commodity derivative segment as soon as approvals are in place. It would consist of non-agricultural commodities like metal, oil and gas,” BSE Managing Director and CEO Ashishkumar Chauhan said.

Post the merger of the capital market regulator Sebi and commodity market watchdog Forward Market Commission (FMC), the exchange members need not create a separate subsidiary to start commodity trading.

“As and when that (merger) process is complete, our members can trade in commodities. Earlier, they had to open a separate subsidiary to become member of commodity exchange.

Now they are allowing us to trade as part of BSE as and when the approvals come,” Chauhan said.

At present, there are two major national and six regional bourses which offers commodity futures trading in the country.

As BSE completes 140 years of operations, Chauhan said BSE wants to position itself as “investment bourse” of any type of asset class rather than just be confined to being an equity trading platform.

He further said that they have got board approval for setting up of an international exchange in Gujarat’s GIFT City.

“We will apply to regulator Sebi. This is first time that an international finance zone is set up and we plan to offer all asset classes which will include equity derivative, currency derivate, interest rate derivative, and international and domestic commodities in the international exchange,” he said.

The new exchange will also help global companies raise finance from other overseas investors.

“We want to raise funds for Indian companies and foreign companies using international finance zone. For international finance zone to succeed and compete with Singapore, Hong Kong and others we need to ensure that it is able to provide all options under one roof,” Chauhan said.

He said the planned international exchange would be a BSE subsidiary through which companies can raise funds through issue of depository receipts.

“Currently, we are in the process of discussion with MCA and others what names are available,” Chauhan said when asked what would be the name of the new exchange in the GIFT City.

GIFT city, situated in Gujarat, caters to India’s large financial services potential by offering global firms a world—class infrastructure and facilities. It aims to attract the top talent in the country by providing the finest quality of life all with integrated townships, IFSC and multi—speciality special economic zone.

 Source – The Hindu (July 9, 2016).