Commodities trade norms tightened

The Forward Markets Commission (FMC) today tightened trading norms by placing curbs on open positions of commodities in an attempt to duck excess volatility. The new norms come into force with immediate effect.

The limits on open positions for chana, tur, urad, guarseed, guargum, mentha oil and sugar may be restricted to one-tenth of existing limits for the near-month contract. At present, the member-wise open position for chana is 80,000 tonnes. This will be slashed to 2,000 tonnes.

Similarly, the open position for tur is 50,000 tonnes, which will be pared to 5,000 tonnes.

This reduction was in conformity with international practices, the commodity markets regulator said. The new norms will be applicable for all contracts for these commodities from March.

With this, the existing directive against permitting additional open positions by operators stands null and void for these commodities.

In another directive to the exchanges, the FMC said all sellers would be required to make public whether they would hold on to their positions or sell at least five days ahead of the expiry of contracts.

The details of delivery "" both in terms of quantity as well as the names of the centres where it will take place "" should be disseminated by the exchanges at least four days before the expiry of contracts.

Apart from seeking wide publicity on the quantity of goods stocked in accredited warehouses on daily, at least for the last 15 days of contracts, the FMC has also made changes for the use of funds collected through penalties.

Exchanges have been directed to set up an investor protection fund to deposit penalties after deducting a maximum of 5 per cent for administrative expenses.

Until now, penalties collected from defaulting participants have been passed on to aggrieved parties. The purpose of this change is to meet pre-specified liabilities, including liabilities arising out of default by members. These measures, too, take effect immediately.

Commodities exchanges have been directed to do away with all delivery centres that are outside a radius of 300 km from the main delivery centres, after the contract matures in March. The exchanges will review every month the prices polled by participants to identify those habitually polling unrealistic prices.

These participants could be kept under watch and deleted from the panel if such instances recurred, the FMC said.

The commission has instructed exchanges and external agencies to double the sample size used for setting the daily spot prices during the last 15 days of the contract.

The FMC has also permitted spot-price setting by external agencies, provided variations are normal from the main centres to other delivery centres.

The exchanges will now work out a formula, which will be followed by the polling agencies to set spot prices, based on normal parities between spot prices at the main delivery centres and spot prices at other delivery centres. This process should be adopted for at least 15 days before the expiry of the contract, the commission said.