FMC eases final agri settlement price norms, reduces poll track period

In yet another relaxation for commodity derivatives exchanges, the Forward Markets Commission (FMC) has revised the provisions on final settlement prices in agricultural commodities.

In a circular dated June 20, it has brought down the mandatory average price polling to three days from the earlier five days. The exchanges were settling all agri commodity contracts at the average price polled by individual exchange five days prior to the expiry day. Now, the exchanges need to take the polled price of the three previous days and average these to arrive at the final settlement.

In case the first of the three previous days is a holiday, the exchange would have to take the fourth day’s price for calculating the average. If the two consecutive previous days before the expiry day are holidays, it must consider a further two days prior to the holiday.

“In all, the average should be of three days instead of the earlier five days,” said D S Kolamkar, member, FMC. He further said the final settlement price for internationally benchmarked commodities and intention matching contracts would remain unchanged. “In these contracts, we do have a reference price and, hence, there was no need for a change,” he added.

“It is a welcome step, as the period of price polling has been reduced,” said Naveen Mathur, associate director (commodities and currencies), Angel Broking.

To fetch a higher price, traders commonly raise prices of agri commodities artificially when the expiry day of the contract comes closer. In a number of cases, the price of that commodity moves in a narrow range until five days before the expiry. Traders have enough opportunity to rig the price even during the polling period.

Traders have been seen to try changing the price artificially, especially in narrow commodities like jeera or mentha oil. “I am sure the regulator has studied this and made the change effective. This is to reduce artificial volatility in commodity prices,” said Priti Gupta, director at Anand Rathi Commodities.