The Forward Markets Commission (FMC) has introduced early delivery system (EDS) in pepper, rubber and mentha oil on experimental basis. FMC has issued a circular in this regard on January 19. As per the provisions of EDS the near month limit shall be applicable during the last seven trading days of the expiry of a contract.
An early delivery period shall be available during the pre 14th day of the expiry date of the contract (E-14) to first day before of the expiry of the contract (E-1). During the period from E-14 to E-8, normal client level position limits will continue to be in force. Hedgers, allowed higher limits by the Exchange, will continue to avail of such limits. If the intentions of the buyers and sellers match, then the respective positions would be closed out by physical deliveries.
The near month limits will be in force during the period from E-7 till expiry of the contract. During this period also, if the intentions of the buyers/sellers match, then the respective positions would be closed out by physical deliveries.
If there is no intention matching for delivery between sellers and buyers, then such delivery intention will get automatically extinguished at the close of E-1 day. The intentions can be withdrawn during the course of E-14 to E-1 day if they remained unmatched. In case intention of delivery gets matched, then the process of pay-in and pay-out will be completed on T + 2 basis, where ‘T’ stands for the day on which matching has been done.
In respect of delivery defaults after the matching of delivery intentions, penalty provisions as applicable in the case of delivery defaults in compulsory delivery contracts will be applied. On the expiry of the contract, all outstanding positions would be settled by delivery and all the penalty provisions for delivery default applicable in the compulsory delivery contracts shall apply. As per the circular this provisions would be applied to all futures contracts of Pepper, Mentha oil and Rubber expiring in February 2009 and onwards.
The FMC circular is in the wake of some delivery issues in pepper futures trading in January ‘09 contract. There were wide apprehensions over a delivery default in January contract as physical stock had been lowered to around 1000 tonne. The stalemate was evaded by forwarding the contract to February, providing a premium of Rs 3 -3.50 per kg to a section of buyers.