The BSE's new initiative is aimed at mitigating the market risk of a buyer not receiving bonds after having remitted the funds or a seller not getting the payment for bonds
The Bombay Stock Exchange (BSE) will introduce a secured settlement platform for the Rs1,500 crore Indian corporate debt market (ICDM) next week, reports PTI.
The new initiative is aimed at mitigating the market risk of a buyer not receiving bonds after having remitted the funds or a seller not getting the payment for bonds.
Further, the BSE would soon launch a corporate bond repo (CBR), another new product for the Indian market. "We hope to operationalise the ICDM platform on the exchange by next week," said Sayee Srinivasan, BSE product strategy head.
"We are now in the process of signing up banks and other players in the system and testing our connectivity with their back offices, depositories, and Reserve Bank of India’s Real Time Gross Settlement System (RTGS)," he said.
The exchange is participating in education seminars and road shows across cities to inform market participants about the new settlement platform.
Mr Srinivasan said that the BSE was awaiting guidelines for the CBR. "After RBI provides the guidelines, we will launch it in four weeks," he said.
Spot prices of key raw materials—iron ore and coking coal—have strengthened during the past two months. Next year’s contracts are expected to be finalised at higher levels. Ergo, these cost dynamics will lead to higher steel prices
Steel prices are set to go up from January 2010 due to increase in raw material costs, like iron ore and metal scrap.
"International prices have gone up, so it's likely that domestic prices will also go up next month," SK Roongta, chairman, Steel Authority of India (SAIL), told reporters. State-run SAIL is the country's largest steel producer.
Led by demand from China, prices of iron ore—the key raw material for pig iron—have gone up sharply over the past two months to $106 per tonne from almost $81-$82 per tonne. Coking coal prices have also gone up to $165-$170 per tonne from $128 per tonne as China imported more coking coal this year.
December being the holiday season in Europe and the US, not much activity is seen in those markets currently, but as traders come out of holidays in January, more activity will be seen in the global steel market, resulting in higher demand.
"With prices of key raw materials going up, cost of production for pig iron manufacturers has gone up and this has forced them to increase prices. We believe that the same factor is going to be applicable to steel prices and we expect them to go up next month," said Kisan Ratilal Choksey Shares and Securities Pvt Ltd, in a note.
Industrial analysts see iron ore prices going up by about 10% to 20% next year on increasing demand as the world economy recovers.
Talks between China, the world's largest importer of iron ore, and suppliers failed earlier following the supplier association's demand on a deeper price cut than Rio Tinto Ltd and BHP Biliton Ltd had agreed with other Asian countries.
According to media reports, the Chinese steel industry has also called for a global opposition to the proposed joint venture for mining between Rio and BHP, the world's second and third largest iron ore suppliers.
Sharp fall of steel prices in the Chinese domestic market since August negatively impacted the global steel market as there was some correction in prices after they peaked in September across all major markets on account of availability of cheap Chinese material. India was no exception and major steel producers reduced prices of flat steel products by Rs700-Rs1,500 per tonne.
But in the past two months, Chinese domestic steel prices have improved by 6%-7%, led by a slight fall in domestic steel production levels as many mills were going for annual planned maintenance shutdowns, which might have led to stabilisation in global steel prices.
Another factor that might have supported the prices is the quantum of purchases and delivery. With about four to five weeks delivery lead time from China, many European stockists, not sure about the domestic demand, were not placing large orders resulting in lower orders for Chinese materials.
"We expect steel prices in the global markets to move a bit in the later part of the first quarter of 2010, as spot prices of key raw materials—iron ore and coking coal—are strengthening in the past one-two months. Next year’s contracts are expected at higher levels, these cost dynamics would lead to higher steel prices," said another brokerage.
According to a report by industry consultancy Mysteel, this week, iron ore inventories at China's major ports rose by 830,000 tonnes to end at 66.75 million tonnes, while stockpiles of ore originating from Brazil increased by 180,000 tonnes to 19.1 million tonnes, and Indian ore rose by 830,000 tonnes at 13.18 million tonnes. Australian ore inventories fell by 480,000 tonnes to end at 21.95 million tonnes by the end of the week.
Mysteel said that while Chinese iron ore prices remained steady, the average price of imported iron ore increased by 2.3%. Iron ore prices are 25.8% higher than December 2008, it added.
Encouraged by a sudden spurt in demand from the steel and foundry sectors, pig iron producers have also increased prices by 6% to 8% for spot delivery. Experts believe the price rise was needed as pig iron producers are currently operating on wafer-thin margins, with prices of raw materials and finished products having moved up.
With this revision, pig iron for steel consumption was quoted at Rs16,500-Rs18,000 a tonne, while that for the foundry sector was at Rs18,500-Rs20,000 a tonne—a rise of about Rs1,200-Rs1,500 per tonne.
All the parties in this story seem to have acted in connivance and played to their respective galleries.
SEBI announced that equity and derivatives markets may remain open from 9am to 5pm. Opinion polls were conducted and it was found that the majority was against extending trading hours. The noise stopped. Suddenly, out of nowhere, BSE announced that it would start trading from 9.45am. In the game of one-upmanship, NSE declared as a counter-measure that it would start trading from 9am. BSE then announced that it also has no option but to start trading from 9am. The date was set as 18 December 2009. Afterwards the date was postponed to 4 Jan 2010 to compassionately give enough time to brokers to prepare themselves.
This story sounds like the Headley-Rana plot in a wannabe thriller. All the parties seem to have acted in connivance and played to their respective galleries. The next part of the plot would unfold with MCX starting its exchange and as a USP, announcing that it would trade from 9am to 5pm. BSE and NSE would follow suit, saying that they had no other option. Thus, the autocratic SEBI would achieve its objective, having remained a mute spectator.
The main reason cited for extending trading hours is that SGX Nifty starts trading in Singapore earlier and so it snatches away a lot of business from India. Has any study been conducted as to how much Nifty volume is traded on SGX before 9.55am and after 3.30pm and how much during Indian timings? One understands that the volumes are insignificant except on rare occasions when there is major global turbulence. Moreover, SGX starts trading from 6.30am IST. So would NSE/BSE consider starting trading from 6.30am in future? What if (and hopefully so) Nifty is listed on London and US exchanges? Would then SEBI allow trading up to 1.30am IST to match US timings so that the volumes remain in India?
The other reason for the extension is that NSE and BSE are profit-making organisations and they have to maximise shareholder value. In that case, they should ideally keep the markets open for 12 hours or more, or maybe even 24 hours, since the trading is electronic. Should the BSE not take the opinions of market participants who are also minority 49% shareholders?
One other reason is that the extension will facilitate FIIs to trade more and will suit their timings. Are we Indians still slaves to the foreigners? Should we not bother about our inconveniences as well? Why is the Hong Kong market open only for four hours?
So what is the practical problem if the markets open early?
The stock brokers’ offices do not function like other offices where 9am timing means that the staff has to report by 9am. They have to report at least an hour or two early and prepare for the day’s work, like checking bank accounts, client accounts, margins, news analysis and research, taking orders, etc. In metro cities especially, the staff has to commute long distances and so it is physically very difficult to cope up. The big brokers can run their offices for 24 hours but the small brokers cannot match that at all. So this move will be against the interests of small brokers who typically service small investors.
The most important problem is lack of back-up infrastructure. We live in a country where even now cheques are cleared in 48 hours. Small investors live in places where they have accounts in cooperative banks and not in private banks like their counterparts in metros. First, the banking and depository infrastructures have to gear up to meet the demands of the extended trading timings. RBI, NSDL, CDSL, all the banks and all the depository participants (including many banks) have to start functioning from 9am, otherwise there could be a serious timing mismatch leading to disastrous situations. Since 2004, due to increasing globalisation and volatility, indices have hit lower or upper circuits many times, almost averaging once a year. In such cases in future when the markets open in circuit, the brokers or traders/investors may be having enough funds in their bank accounts or having enough shares in their depository accounts, but due to the mismatch in timings they may not be able to transfer funds/shares in time. They would then be declared defaulters for no obvious fault of their own and their outstanding positions may be compulsorily squared up, leading to huge losses and disputes with clients. Who will claim responsibility for such losses? Will SEBI, BSE or NSE compensate the brokers and investors?
It is quite evident that SEBI, BSE and NSE have not applied their mind properly and, without taking into account the infrastructural and procedural difficulties and the opinions of market players, have gone ahead to implement this idea to suit their interests and their autocratic attitude. A similar situation had arisen when SEBI had almost decided to implement T+1 settlement but sanity had then prevailed. We hope that this time too, some degree of sanity prevails and this arrogant decision is reversed without making it a prestige issue.