The ongoing COVID-19 pandemic has completely disrupted the lives of people across the world. Not only has it put the health of individuals at risk, but it has also negatively impacted the financial and economic sectors in multiple countries. Almost all non-essential industries and businesses have been forced to shut their operations due to the enforcement of lockdowns.
Taking this grim situation into consideration, all the commodity stock exchanges in India have announced that there would be a reduction in the commodity trading time due to COVID-19 lockdown starting from March 30, 2020. Here’s some more information about the commodity trade timing reduction due to coronavirus lockdown and its subsequent impact.
The reasoning behind the reduction in the commodity trading time due to COVID-19 lockdown
The Prime Minister of India announced a 21-day nation-wide lockdown on March 24, 2020 in an effort to curb the spread of COVID-19 in the country. Since the movement of all individuals except those providing essential services was banned, it has become extremely difficult for the workforce involved in operating and maintaining brokerages and the commodity stock exchanges to access their workplace.
This difficulty faced by the individuals engaged in providing trading services was exacerbated by the fact that these services are considered non-essential and therefore, do not feature in the Essential Services Act. In addition to this, the state government of Maharashtra has also asked brokerage firms and stock exchanges to operate with minimum workforce. All of these factors combined have left brokerages and stock exchanges in a highly disadvantageous position.
Therefore, with a view to ease the hardships faced by the firms providing commodity trading services, the stock exchanges, in consultation with the Securities and Exchange Board of India, have reduced the trading time in the commodities market. This extraordinary measure can enable the brokerage firms and stock exchanges to operate in a more efficient manner even with a reduced workforce. Additionally, it would also reduce the risk of the workforce getting infected with COVID-19.
Commodity trade timing reduction due to coronavirus lockdown
Now that you’re aware of the coronavirus lockdown impact on cut in commodity trading hours, let’s take a look at what the revised timings are.
Ordinarily, a trading session for commodities market is split into two sessions, namely the special session and the normal session. The special session commences at 8.45AM and extends till 8.59AM.
The normal trading session is again bifurcated into two parts, namely the morning session and evening session. The morning session starts at 9.00AM and extends till 5.00PM, while the evening session begins at 5.00PM and goes all the way till 11.30PM. Each year, during the period between November and March, the evening trading session is extended till 11.55PM due to the implementation of daylight savings time in several countries.
With the implementation of the 21-day lockdown however, SEBI and the respective commodities stock exchanges have announced a 6.5-hour reduction in the commodity trading time due to COVID-19 lockdown. According to the announcements made by the respective authorities, the commodity trading time would extend from 9.00AM till 5.00PM, starting from March 30,2020 till April 14, 2020. The evening session of trade in the commodities market stands suspended till the completion of the lockdown period.
Furthermore, these revised timings are applicable for both commodities as well as commodity derivatives such as futures and options. As things stand now, these new timings are only valid till April 14, 2020, beyond which the original trade timings would be automatically restored.
On the outset, the commodity trade timing reduction due to coronavirus lockdown seems to be only a stop-gap measure. While the reduction in timing has its benefits, the coronavirus lockdown impact on cut in commodity trading hours may not be enough to quell the financial impact of the pandemic. Moreover, industry experts are of the opinion that the cut in the timing could negatively impact smaller brokers and traders by increasing their risk of losses.
In the event of excess volatility on overseas exchanges, brokers and traders might see wild swings in the form of gap-ups and gap-downs in the price level of commodities when the markets open at 9.00AM. Also, there are growing requests from concerned members to completely suspend commodities trading till the end of the lockdown period. Lastly, the true nature of the coronavirus lockdown impact on cut in commodity trading hours can be accurately gauged only upon the restoration of normal market trading hours.