FMC favours uniform margins to cut volatility

The apex regulator for the commodities market "" Forward Markets Commission "" (FMC) proposes a uniform margin system across all national exchanges. It is also working out a common pattern to manage volatility in prices of commodities across exchanges in a transparent manner.

S Sundareshan, FMC chairman said the risk management committee of the commission was working on reducing price volatility and arbitrages across exchanges.

At present, every exchange has a different margin system for every commodity. This discriminates against the trading pattern in a particular commodity in different exchanges and distorts the volume. This is because the margin is calculated based on the volatility in prices.

Similarly, a uniform pattern for price fluctuation will be based on price movements in a certain commodity. This will determine the band, if breached.

The circuit breaker usually alerts the exchange to stop trading in a certain product if the range in volatility is too wide. However, different commodities might have different levels of price movement to trigger the circuit breaker, sources added.

According to an executive of a Mumbai-based exchange, "The move is a positive step to bring more co-ordination, uniformity and transparency in the working of the exchanges."

The risk management group has been framed to work out uniform risk management norms across exchanges so that inter exchange arbitrage could be stopped and investors could get level playing field irrespective of the exchanges they choose.

The commission has also suggested an amendment to the Forward Contract and Regulation Act ((FCRA) to the ministry of consumer affairs so as to facilitate the introduction of options in the commodities market.

Recently the commission came out with a set of guidelines to regulate the market for better price discovery and transparency. As per the new guidelines, the exchanges cannot make any changes to the terms of the contract during the period of the contract.

There will be uniform transaction charges across commodities in an exchange. The exchanges will have uniform trading hours and night trading will be allowed in non agro commodities dealt on the international exchanges.