Readings: Commodity trading, Comex plans, Commodity policies
- Economic Times: Commodity trading hits a rough patch
Besides the trading ban, restriction on banks owning commodity broking business has also come as a setback to the sector. Under current regulations, Indian broking firms have to demerge their commodity broking arm when they are acquired by banks. In such cases, the broking division is either hived off as a separate company or closed down.
In recent cases like Standard Chartered buying 49% in UTI securities or BNP Paribas acquiring Geojit Securities, the Indian broking companies have had to demerge their commodity business. The fate of over 400 employees of the commodity division of IL&FS Investsmart is in limbo as HSBC acquired IL&FS Investsmart.
In the case of NCDEX, the agri-commodity exchange, the trading volumes have dropped by more than 60% over the past one year. The valuation of MCX, the biggest commex, has remained unchanged at $1-1.1 billion since the past year.
New guidelines for commodity exchanges will see at least three players entering the promising but highly skewed market.They are Anil Ambani’s Reliance ADA Group, Kotak Mahindra Bank and IndiaBulls. Currently, the Multi Commodity Exchange is the undisputed leader with at least 70% market share.
Reliance Money has a tie-up with Bombay Stock Exchange and the Bombay Bullion Association, whereas Kotak Mahindra has already aligned with Ahmedabad Stock Exchange. IndiaBulls has linked up with public sector MMTC.
- NY Times: Commodity Policies Set for Revision
As commodity prices have risen over the last several years, these (index) funds have become an increasingly large player in the commodity futures markets, rising from a stake of roughly $13 billion in 2003 to an estimated $250 billion this year.
That lopsided trading pattern has generated complaints — most recently at a hearing last week before the Senate Committee on Homeland Security and Governmental Affairs — that index investors are artificially driving up commodity prices at the expense of consumers. One Senate witness even proposed that federally regulated pension funds, a major source of index fund investments, should be forbidden from investing in commodities because of their impact on consumer prices.
Unlike traditional commodity investors or balanced hedge funds, these index funds do not both buy and sell commodity futures — they only buy, reflecting investors’ desire for a stake in a rising market.
Will this lead to a short-term rush into these funds, before the government/CFTC clamps things down?
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