Commodity Futures

Daylight Saving Time and Indian Commodity trading patterns

Anand James, Sr. Manager, Geojit Financial Services

Due to change in U.S. Daylight Saving Time, the trading timings in Commodity Exchanges in India have been extended from 11:30pm to 11:55pm. This revised trading timing will be effective from 3rd Nov.’08 till 7th Mar.’08. Let us now see what is Daylight Saving Time (DST) and its effects.

Daylight Saving Time is a way of getting more light out of the day by advancing clocks by one hour during the summer. During Daylight Saving Time, the sun appears to rise one hour later in the morning, when people are usually asleep anyway, and sets one hour later in the evening, seeming to stretch the day longer. The idea of having DST is to reduce the cost of artificial lighting. Many countries observe DST, and many do not.

The concept first originated in 1874, when Benjamin Franklin, an American envoy to France proposed rationing candles, waking the public by ringing church bells and firing cannon balls at sunrise etc. in order to reduce the cost of artificial lighting. Modern DST was proposed in 1907 by William Willet, an English builder, and was widely put to use during World War I in 1916.

DST changes could have an economic cost by way of decreased efficiency due to change in work timings. DST could adversely affect farmers and others whose productive hours are determined by the availability of sunlinght. For example, during grain harvesting, when field workers arrive and leave earlier in summer their labor is less valuable as the harvesting is best done after dew evaporates. For systems and applications that work across international time zones, the changes could be more complicated. A research, based on heart attacks in Sweden, concluded that the chance of a heart attack goes up during the first three weekdays after the springtime shift to DST, possibly because of sleep deprivation.

India, along with Japan and China are the only major industrialized countries that do not observe some form of daylight saving.

A recent study which investigated the presence and effects of Daylight Saving Time on stock returns and on stock volatility, based on evidence gathered from the major U.S. stock markets for the period between 1967 and 2007

supports the argument of the non-existence of daylight saving effects on stock market returns and volatility.

However, close observation of trading patterns in Indian Commodity exchanges suggest that the changes in trading timings in Indian Commodity exchanges might have an effect, at least along the following lines:

1. Change: LME Warehouse Data which was previously released at 1:30pm daily is now released at 2:30pm.

Effect: Work-motion studies have shown that workers are lethargic and not at their sharpest best during the first few hours after lunch. The same applies here as the release time of LME Warehouse Data is well after the normal lunch time in India.

Commodities directly affected: Base Metals

2. Change: Opening of US Pit Trading (Commodities) has been changed to 6:40pm for Bullion/Copper and 7:30pm for WTI Crude Oil.

Effect: A good section of commodity traders in India trade during the day and try to wind close positions by evening, with most of them participating in the voluminous moves and volatility normally associated with the opening of U.S. commodity markets at 5:40pm previously. With these timings now being extended to late evening, either a large section of such traders skip the voluminous moves after 6:40pm, or their trading patterns are affected during the normal course of the day.

Commodities directly affected: Copper, Gold, Silver and Crude

3. Change: Opening of U.S. Equity Markets and Release of U.S. Economic Data: A lot of crucial U.S. economic data which used to be trendsetters was released at 6–6:30pm earlier, which has been advanced by an hour, and the same effects as noted above applies here. Moreover, traders would now have to wait till 8 pm, for U.S. Equity markets to open, which normally initiates major moves in Commodities.

All said, even though India does not have an official DST, with an ever growing population employed or trading in the Commodity Markets, DST changes across the world, especially U.S. and Europe does appear to have a tangible effect on Indian commodity trading patterns.