Commodity exchanges see sharp fall in volume in December

Absence of cross hedging from Dubba traders, thin trade in agri mandi, demonetisation creates haul

Two leading commodity exchanges, one known for agri trading and another for metals and energy products, have seen a sharp drop in volumes. According to market participants, the absence of cross hedging from Dubba traders, thin trade in agri mandis and many traders busy managing demonetisation blues created big haul on volumes.

On MCX December 2016, average daily volume was Rs 17,492 against Rs 19,710 crore in same period last year. However, compared to daily average for the year, fall in December volumes are much sharper. Same is the scene in lower volumes seen on NCDEX, but this year, fall in december volume is so sharp that it is only 40 per cent of whole year daily average volumes and just a fourth of last year's daily average volume.

NCDEX spokes person said: "The withdrawal of old currency has surely caused severe disruptions in the physical markets and being a derivatives market, we are experiencing the waterfall impact of this upheaval. However, we believe this a short term impact and slowly and steadily the volumes should come back to normal. A sweeping reform like demonetisation comes with a period of disruption and adjustment and I believe we are going through that."

Demonetisation has directly and indirectly impacted volumes on Indian commodity exchanges. "Post announcement of withdrawal of high value currency notes, dubba trading which was illegal unregulated trade outside the official exchange platform halted. However, these traders were hedging positions on official platforms and hence covering those positions happened during November and volumes didn't take a hit in November. In December, usually volumes were low but this time due to demonetisation impact fall was sharper," said a market participants on the condition of anonimity.

Many large trading clients of exchanges were also keeping away from trading as they were busy in settling their books before December 30 deadline ends for depositing old notes. 

While MCX stayed away from making any comments, NCDEX said about efforts they are making to bring back volumes. "The exchange has intensified programs to reach out to farmer producer organisations and value chain participants to encourage them to use the regulated, cashless exchange traded platforms to conduct their business and we are seeing early signs of adoption amongst these segments."