Commexes to cut trading hours of LME contracts

MUMBAI: Commodity futures regulator Forward Markets Commission (FMC) has modified trading hours for gold, silver, ferrous and non-ferrous metals contracts on the expiry dates.

A circular issued by the FMC dated Thursday has directed the three national commexes ��� MCX, NCDEX and Ahmedabad based NMCE ��� to bring down trading hours of London Metals Exchange-based contracts from 10 am to 7 pm against the closing of 11.55 pm only on the expiry date of the respective contracts.

Earlier, the markets were confused as the circular stated that modified timings would apply on a daily basis. Later, however, FMC clarified that the modified timings would apply only on the expiry date of the contracts. The FMC circular states that trading in LME based contracts ���is being continued under the auspices of the national exchanges even after the closure of the international market (ie, at 7 pm).���

The circular further states that since the closing price of LME based contracts is considered as the benchmarked reference price for the final settlement purpose for contracts traded at these exchanges, continued trading (till 11.55 pm) after closure of the international markets leads to ���asymmetry of information.���

What this means is if a particular contract at LME closes at say $98 per tonne and if an investor has gone long expecting the price to touch $100, he would end up losing $2. Since trading on national commexes continues for around 5 hours after LME closes, investors who lose in the aforesaid instance get extra time to rig up the price of the contract, say to $102 per tonne, and earn $4 instead of sustaining a loss of $2 per tonne. Plainly put, the markets can be manipulated to a particular section of investors��� advantage. This is what the FMC seeks to curb.

Interestingly, while gold and silver are not referenceable to LME based contracts they have been brought under the ambit of modified timings as they are traded on an OTC market in London.

When contacted, the chairman of the FMC, S Sundareshan said, ���There was some technical error, but I cannot comment on the issue further.���In the local futures market, the February gold contract closed down by Rs 17 from the previous day, at Rs 9,312 per 10 gram in the first session of trading up to 5 pm. Silver for delivery in March closed Rs 20,070 per kg down Rs 22.