Algo commodity trade to be banned in mini contracts from January

Computer-driven algorithmic and high frequency commodity trading in mini and micro contracts would be banned on commodity bourses effective from January 1, 2013, according to the Forward Markets Commission (FMC).

The sophisticated technology allows traders to use computer algorithms to hunt for the best prices and execute trading orders quickly.

At present, traders are using the technology in such trade, in both large and mini/micro futures contracts.

“The Commission has decided to implement the circular about prohibition of algo and high frequency trading in mini and micro contract with effect from January 1, 2013 instead of December 1, 2012,” FMC said on its website.

More time has been given following a representation from an exchange which said it needs to develop and test the trading system thorougly to ensure traders do not execute automatic trading with use of technology in mini and micro contracts, the regulator said.

Algo and high frequency trading would be restricted to ensure small and retail traders in the value change hedge their risk, it added. FMC has also directed the exchanges to submit the compliance report in this regard at the earliest.

At present, mini and micro contracts are being offered in gold, silver and some base metals on the MCX platform.

There are six national exchanges and 16 regional level bourses in the country.