Comexes wary of 4% cap in day's wheat trade

The Forward Markets Commission (FMC), the commodity market regulator, has directed commodity exchanges to reduce the daily price limit for trading in wheat futures to 4 per cent from 6 (4+2) per cent earlier, to be effective from September 1.

This means if the price touches the 4 per cent cap on either side (up and down), the trading will be terminated for the day. Earlier, trading in wheat used to have a 15-minute pause after the price had touched the 4 per cent ceiling in either direction.

If the price, on resumption, hit a further 2 per cent ceiling in the same direction, the trade would halt for the day.

Traders feel that they are being choked under the new FMC guidelines. So, they are gradually diverting their funds "� meant for commodities "� elsewhere, said a trader.

"Earlier, open position limit and now this price cap! What does the regulator want to do? On the one hand, it is talking about the entry of foreign institutional investors, banks and mutual funds in order to create volumes on the exchanges.

On the other, it is putting brakes on the same. The commission has created a suffocating environment for all commodity traders," a top official with a leading commodity exchange said on condition of anonymity.

In an another regulatory change, the FMC has raised the additional/ special margin to 20 per cent from 10 per cent on all long positions.

This margin on all contracts of wheat will, henceforth, be payable in cash during normal pay-in time. At present, Multi Commodity Exchange (MCX) levies 10 per cent of initial margin and 10 per cent of additional/ special margin on long positions.

For short positions no special/ additional margin is levied on wheat traded on MCX. Besides an additional margin of 5 per cent "� imposed by the regulator on the longs and the shorts on July 13, the exchanges are directed to impose a further additional margin of 10 per cent on long positions and 5 per cent on short positions in all chana contracts.

Thus, effectively, the revised additional margin rates will be 15 per cent on the longs and 10 per cent on the shorts, from now on.

The FMC clarified that these additional margins would be in addition to all other self-imposed margins in vogue at different exchanges. Further, the bourses will be free to charge higher margins than those indicated above.

These revised margins "� for wheat and chana contracts "� will be applicable on the positions outstanding with effect from September 1.

The country is facing a supply deficit of about 5 million tonne and has signed contracts with a large number of overseas suppliers to meet the consumption target of about 72 million tonne.

The domestic wheat crop season falls between March and February, with the sowing starting in October.