But regulator relaxes open position limits for members trading on these exchanges.
The Forward Markets Commission (FMC) has directed all commodity exchanges to freeze multiple client codes for a single account with immediate effect while relaxing the open position limits widely for members trading on these exchanges.
“The review in the open position limits has been done to relax it but at the same time it should be used by genuine traders for hedging and not for speculative and trading positions,” said an official source close to development.
The FMC has widened the open positions limit for all major agri commodities from three times the client limit currently to five times the client limit. The major commodities covered under the reviewed open position limits are chana, potato, mustard seed, soya, refined soya, wheat, CPO, maize, jeera, pepper, red chilli, turmeric, cardamom, cotton cake, guar gum, guar seed, castor seed and coriander.
While the limits were relaxed in the end of February, they will come into effect now, after members got the necessary clearances. The relaxation has been done both for aggregate (all contract limits) and delivery (near month) limits. The limits should be allotted preferably after clearing up the multiple codes to avoid the concentration of positions for a single or group of clients in a particular commodity, sources said.
The open position is the amount of trades left uncovered or open by a client in a particular commodity. A single member is given a consolidated limit which it allocates to its clients. Over and above this limit, it cannot take new clients without taking prior permission of the market regulator.
Sources said, now for hedging purposes, members need not seek permission for additional open position limits over and above the client limit if a request for a genuine hedge comes. “The limits are wide enough to allow members to allocate open position limits even for a last-minute hedging requirement. At present, members apply for an additional open position limit over and above the limit allocated to the client for a last-minute hedging requirement. The limit has been widened keeping in view the average turnover in a commodity historically, both at the time of volatility and a genuine upsurge in trading volumes,” sources said.
Currently, beyond the limit of three time the client allotted limits, no new clients can be taken.
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Market sources said most often commodity broker members in the recent past had to rush to the regulator, seeking higher limits for soybean, soya oil and gold — where the delivery-based volume is very high.
Under the revised guidelines, members can exercise their discretion to allocate open position limits to the clients. However, it has been clarified that a member’s open position limits can either be the absolute number specified by the regulator or 15 per cent of the total open position limits in the market for that particular commodity, whichever is higher. Similarly, for delivery-based contracts, the open position limits can be the higher of either the absolute limit specified or 15 per cent of the total near month or the delivery-based open position in that commodity.