Moneycontrol PRO
Check Credit Score
Check Credit Score
HomeNewsBusinesscommodities

Coronavirus pandemic: Sebi, commodity exchanges in talks to continue trading without spot market

As key states such as Maharashtra, Gujarat, Rajasthan and Punjab have been placed under lockdown until March 31, many commodity traders have raised concerns over the derivatives market operations.

March 23, 2020 / 04:53 PM IST

The capital and commodities market regulator Securities and Exchanges Board of India (Sebi) is in discussion with exchanges whether to continue market operations without the underlying spot market.

Sebi and exchanges on March 23 are holding talks to tackle the situation. A source told Moneycontrol: "Sebi is currently in discussion with exchanges; but we should stop trading without spot because, without it, there is no relevance of derivatives market or longer contract expiry timeline."

As key states such as Maharashtra, Gujarat, Rajasthan and Punjab have been placed under lockdown until March 31 to check the spread of the novel coronavirus, many commodity traders have raised concerns over the derivatives market operations.

A spot commodity is a commodity up for immediate trade, as opposed to a commodity under contract for trade at a future date. Spot commodities must be ready for immediate sale and delivery, as most trades typically settle within two days.

Though central and state governments have announced the lockdown in various states which is hampering spot market trading, ‘mandis’ are allowed to remain open for essential items.

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

In non-agri segment, contracts are expiring in the last week of March. In Gold, contracts which will expire between March 31 and April 3 are on the basis of spot prices in Mumbai and Ahmedabad gold markets. Both markets are now closed because of COVID-19 fears. Similarly, with base metals like aluminium and copper contracts which will expire on March 31, prices depend on ex-Thane prices, which is also under lockdown.

A similar situation prevails in the agri segment also where prices are determined by the local mandi. A senior official of NCDEX, the market leader in agriculture segment, told Moneycontrol: "Our contract will expire around April 20 and the state governments have cleared the transport of essential goods and trading at mandis. So I don't think there is any problem in derivatives trading of agri commodities."

However, Sanjay Padiwal, a trader of chana (chickpea) at Bikaner in Rajasthan said: "The state government has allowed us to open the mandi between 12 PM and 5 PM. But nobody is coming to sell their commodities here, one of the biggest chana markets in India. How do we decide the derivatives price when the spot market is not functional?" he asks.

The situation is the same at Sriganganagar in Rajasthan. "There is no trading of essential commodities at the mandi. Workers are afraid to come and farmers are not coming to sell their crop. So, it is impossible to determine the price of derivatives without the spot market," Manoj Gupta, a mandi trader, observed.

According to a Mumbai-based broker, charges in exchange warehouses are higher compared to other warehouses. “In this situation, exchanges should waive off warehouse charges," he stated.

Tarun Sharma
first published: Mar 23, 2020 04:53 pm

Discover the latest business news, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!

Advisory Alert: It has come to our attention that certain individuals are representing themselves as affiliates of Moneycontrol and soliciting funds on the false promise of assured returns on their investments. We wish to reiterate that Moneycontrol does not solicit funds from investors and neither does it promise any assured returns. In case you are approached by anyone making such claims, please write to us at grievanceofficer@nw18.com or call on 02268882347