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.
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)
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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).
Objective of the move is to use automation to maximise trading profits.
‘Completely automate your strategy with only a few clicks’; ‘Maximise trading profits by using approved execution strategy’, ‘Customise your strategy with custom target and stop-loss, bullish or bearish signals without any programming knowledge’.
These are some of the benefits of algo (algorithm-based) trading highlighted by Ludhiana-based broker MasterTrust on its website. MasterTrust is not the only one goading retail traders to adopt algo-based strategies to trade. A slew of other top domestic brokers such as Edelweiss Financial Services, Sharekhan, IIFL, Prabhudas Lilladher and Reliance Securities have started selling the concept to traders.
The objective remains the same: use automation to maximise trading profits. The broker too benefits by getting an additional fee from the traders — as high as Rs 15,000 to Rs 30,000 per month per strategy — to use the facility. “These strategies help traders tap opportunities in a milli-second, which is practically impossible through human intervention. Besides, algos can provide an additional source of revenue to brokers since customers are willing to pay a fee for using the facility,” said B Gopkumar, chief executive of Reliance Securities. He said Reliance Securities currently have three or four standard algo strategies in place and might do a mass rollout to its clients in the next month or so.
The simplest algo strategies could involve buying a stock when it rises above the 200-day moving average, or selling a particular stock when it moves into overbought territory. There are many other sophisticated strategies such as pair trading and scalping. Scalping, for instance, involves making profits on small price changes. Traders who implement this strategy will place anywhere from 10 to a couple of hundred trades in a single day to capture small price moves.
“At Edelweiss, we are addressing the needs of professional traders and high net worth individuals who have large trading teams,” said Harish Sharma, business head — brokerage and wealth management, Edelweiss Broking, adding they were looking to expand the suite of algo products in the coming months.
Algo trades use advanced mathematical models for effecting transactions and can pump thousands of orders in a second. There are multi-client and single-client algos. The former are automated strategies targeted at multiple clients and based on a preset system of rules developed by brokers or algo vendors. Single-client algos are customised according to the needs of a particular client. Popular algo vendors in the market include Omnesys, Symphony Fintech, and Greeksoft Technologies.
Brokers cite several benefits of employing algo-based strategies. It takes away the emotions from decision making, enabling traders to honour stop-losses and other targets. It also helps clients size their trades more effectively and ensure they don’t become over-leveraged in the market. Some experts, however, believe algo-based strategies are not suited to individuals because of the complexity and the risks involved.
“Retail traders may not be in a position to understand some of these strategies and burn their fingers,” said a broker, on condition of anonymity.
While algo trades provide liquidity as more orders are placed, they can distort prices if wrong programmes are allowed to run unchecked. However, this is mostly a problem only in cases of large orders executed by institutional clients.
As a precautionary step, stock exchanges currently audit all algos to back test them and assess their risk parameters, and might take 25-40 days to before greenlighting a particular strategy.
Interestingly, in September last year, the Association of National Exchanges Members of India (Anmi), a body of stockbrokers, had written to the regulator, suggesting ways to minimise risks arising out of algo trades. At present, about 20 per cent of the turnover on the exchanges comes through the algo route.
Source – Business Standard (May 30, 2016)
Hedgers and punters in commodity futures could soon get to trade options in gold, silver, soyabean and guar seed once Sebi approves the launch of the new products in around three-four months, three persons aware of the development told ET. Also, portfolio management services (PMS) could be approved by the regulator in due course, they added.
The matter was discussed at a commodity derivatives advisory committee (CDAC) meeting on new products and participants held in Sebi’s office in Mumbai on Monday. Sebi officials, commodity exchange chiefs and heads of commodity brokerages were among those present at the meeting.
The 22-member CDAC, chaired by Niti Ayog member Ramesh Chand, will pass on its recommendations to Sebi next month on the matter after which the latter will take a view.
“Discussions (on new products) are on by the sub-group constituted by the advisory committee,” a Sebi official said. “Sebi is likely to receive the recommendations of CDAC sometime in July after which further examination will be done at the regulatory level and a view will be taken.” He did not comment on the types of options or the commodities that would be considered, as discussions were still under way.
Also under discussion were the kinds of options to be launched. It’s likely that options culminating in delivery, or European style options, will be approved. European style options can be exercised only upon maturity, or settled in cash before expiry. The other type of options, American style, can be exercised on or anytime before maturity. Commodity options will be based on futures contracts as unlike in the equity market, the market lacks a cash segment. Options in the equity market are mostly cash settled.
For a non-farm product on which an option can be launched, one of the criteria being discussed is that its average daily turnover be around Rs 5,000 crore. For a farm product, the ADT could be Rs 200 crore. All four commodities cited above meet this criterion.
Gold and silver are traded on MCX, the country’s largest and only listed commodity bourse. Soyabean and guar seed are traded on the country’s premier farm bourse NCDEX.
Source – Economic Times (June 23, 2016).
With easy availability of gadgets, use of superior technology, rising internet speed and access to analyst information, there is steep rise of over 76% of online trading among the young investors in the last couple of years as a primary source of additional income.
According to the survey, more and more youngsters are adapting this quick, efficient and hassle free option of stock trading. Around 60 to 75% rise in trading since the inception of online trading account India, especially amongst the youth investors. Be it a mom to the business professional anyone can be a part of this multi-billion stock market of India and trade anytime, anywhere and anyhow through Online Trading.
In its countrywide survey conducted by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) under the aegis of its Social Development Foundation, reveals that the online share trade industry is growing by 160% year-on-year, the value of all trades executed through the internet has grown more than ten times in two years.
Major metropolitan cities in which respondents were interviewed include Delhi-NCR, Mumbai, Ahmadabad, Cochin, Bangalore, Hyderabad, Kolkata, Indore, Patna, Pune, Chandigarh and Dehradun and it was observed that there has been a steep rise in the use of online share trading with the upcoming technology platform for continuous trading. ASSOCHAM used random data to choose investors representing various age groups, occupation, gender, marital status and annual income range.
According to the findings of the survey, online share trading has become a major fascination by large number of young energetic and intelligent population mostly professionals or unprofessional and employed or unemployed.
Stock trading is the new age thrive, every youngsters are looking toward to improve the income levels. Online trading is the most profitable business, which just requires knowledge of the trading concept, said majority of the respondents.
The survey further reveals that young generation is very analytical, quick and responsive to the every changing market scenario, adds the survey.
With an online trading account India, you can access your mutual funds, stocks, IPOs, equities and much more avoiding the need for multiple brokers, multiple bank accounts and multiple folios. There is also no need to call an agent and one of the biggest benefits of online investment is the complete privacy, adds the 78% of the respondents.
The knowledge of basic trading concepts is enough to get youngsters started. Analyst feeds are also abundantly available online and that helps make trading easier. It is interesting to note that a majority of young investors prefer the futures and options or F&O segment to the spot market, adds the survey.
Online trading account India is considered as a key instrument to improve earnings amongst the youth who are smart, cautious and pick an easy go medium, as it does not require any complicated procedures to carry out trades. Men and women both trade online almost neck to neck in their race to earn high gains with less pain.
Private sector employees who wish to secure their future financial resources form biggest percentage of those trading online. Self employed professionals and public sector employees also form a large chunk of those trading online with most young investors focusing upon the market derivates, permutation and combinations, stats and graphs to extract handful returns from the markets, highlights the survey.
The lagging brokerages are now forced to improve their operational costs and age old lagging trade practices in order to be successful. One of the main obstacles to further development of online trading is telecom infrastructure, which is forcing most online retail brokerages to offer telephone trading as a backup, said Mr. Rawat.
Majority of the respondents doing internet trading belong to the age group of 18 to 23 years followed 24 to 29 years. Similarly, people belong to 30 to 35 age groups. Whereas, 8% people are each from the age group of 36 to 41 years and above 42 years age. Out of 2,500 respondents, 69 % are male and 31% are females.
Nearly, 32% of the people are doing job in private organizations and only 16% are having their own business. Whereas, 20% people are government employees and only 12% are professionals. Over 56% people are unmarried and 44% are married in the collected sample, adds the survey.
In the poll 36% people have an annual income range of 0 to 4 Lakhs. And 32% people have income between 5 to 8 Lakhs. Similarly, 16 % and 8% people have an income range of about 9 to 12 Lakhs and 13 to 15 Lakhs respectively, highlights the survey.
In the survey, it is found that majority of young investors (64%) like to trade in futures and options (F&O) and it shows there is a need to create awareness among investors regarding profitability of investment in futures and options, adds the survey.
The emerging scenario makes it necessary for the broking companies to identify investor’s perception of level service quality, which strongly influences the investor’s behavioral intentions. This would facilitate the process of categorizing, determining and measuring, controlling and thereby improving the investor inclination/interest in online trading.
With brokerage firms tries to find level of satisfaction of investors with broking firms by extending several incentives and concessional service charges to attract the investors.
The survey was able to target corporate employees from 18 broad sectors, with maximum share contributed by employees from IT/ITes sector (17 per cent).
After IT/ITeS sector, contribution of the survey respondents from financial services is 11 per cent. It includes employees engaged in banking sector, stock brokerage house, insurance sector, financial consultancy and chartered accountants.
Employees working in engineering and telecom sector contributed 9 per cent and 8 per cent respectively in the questionnaire. Nearly 6 per cent of the employees belonged from market research/KPO and media background each. Management, FMCG and Infrastructure sector employees share is 5 per cent each, in the total survey.
Respondents from power and real estate sector contributed 4 per cent each. Employees from education and food& beverages sector provided a share of 3 per cent each. Advertising, manufacturing and textiles employees offered a share of 2 per cent each in the survey results.
India is programmed to go the algorithmic trading way just like rest of the world since it helps to sidestep many ‘human errors’ that trip high volume traders adopting traditional trading methods.
The future of trading is in ‘programmed trading’ and India is heading the same way as other countries have been doing. Most of the day-traders lose money and it is estimated that 95 per cent of trading ended up in losses. While there is no assurance that by feeding the trading strategy into a computer, the success of it could be ensured, the chances of successful trading could go up. This is because many of the human weaknesses, like increasing the size of the order while smelling profit that would result in losses ultimately, will be eliminated and ‘that is the most important thing’.
No Human Emotion
The algorithmic trading is based on a programme written by an analyst or trader with parameters set earlier and it could be a jobbing programme or arbitrage trading etc. The advantage is that ‘human emotions will not play a part’ since the computer would execute the orders according to the programme.
It is a fully-automated process, no human intervention is needed and it is ‘away from sentiments’. The traders could do the trading in cash segments, F&O segment etc and the trading could be done in different scrips and there is the facility of putting stop loss too. The volume buying could be done at different price points giving the buyer the benefit of cost averaging and the buy/sell could be done in micro seconds. The high volatility the markets have been witnessing in the past six months has given greater opportunity for algorithmic trading.
While algorithmic trading facility is available in both NSE and BSE, because of the huge trading volume in NSE, more trades are taking place in that exchange. But one could buy in one exchange and sell in another. The algorithmic trading helped in improving liquidity and the traders could fix their own targets for buy or sell, which could be executed automatically.
Algorithmic trading is more suitable for trading in frontline stocks that had ample liquidity because when a sell order was generated, it should be executable. For HNIs, who have on hand a large volume of shares, they could set different price points for sale to average the selling price; and greater the market volatility, the greater is the opportunity in automated trading.