New Delhi: A government panel has recommended extending trading hours at commodity bourses mainly to overlap with Asian and Australian markets and enhance global competitiveness.
The five-member panel, set up against the backdrop of Rs 5,600-crore payment crisis at National Spot Exchange Ltd (NSEL), has come out with 14 recommendations primarily aimed at ensuring better price discovery mechanism in the domestic commodity trading market.
The suggestions of the panel, set up by the finance ministry, also come at a time when inflation has been persisting at high levels.
“Exchanges should explore the idea of extending trading hours that overlap with Asian and Australian markets to improve their international competitiveness,” said the report of the panel headed by D S Kolamkar.
Trading hours in India overlap with European markets, but has little or no overlap with Australia and Asia, a large trading base that has been hitherto untapped.
Suggestions have also been made to fulfill the objectives of price discovery and risk management in commodity futures markets.
The panel has suggested ways to bolster organisational capabilities with regard to commodity trading activities.
“Knee-jerk reaction of suspending trading by attributing inflation to speculation in futures market, similar sudden issuance of regulations or enforcement strategies generate mistrust in the eyes of financial firms who then hold back on investing in organisational capability,” it said.
Among others, the report has proposed permitting foreign financial firms to participate in commodity futures trading. Transactions costs on the futures market are an impediment to arbitrage and FMC (Forward Markets Commission) should pursue a programme of market development, including promoting a diverse array of firms as members to improve market liquidity.
“One way to reduce the cost of capital for the commodities trader is, to make banks and other financial institutions an integral part of trading in commodity derivatives,” it added.
Meanwhile, at present, a number of policies and regulations restrict banks and other financial institutions from participating in futures markets.
“Restrictions on banks under the Banking Regulation Act and other RBI regulated entities need to be removed so as to deepen and widen the participation in these markets,” the panel said.