Aiming to attract wider participation from brokers and speculators, leading commodity derivatives exchanges have withdrawn the special margins on chana and mentha oil with effect from tomorrow.
India’s largest futures trading platform, the Multi Commodity Exchange has, in two separate circulars, stated it was withdrawing the 10 per cent special margin on chana. The one on mentha also stands withdrawn, the circular said. The National Commodity & Derivatives Exchange (NCDEX) issued a similar circular. Generally, special margins are levied on any commodity to cool prices from high volatility. The logic is to curb high speculation, if any, through an additional squeeze in traders’ exposure. Consequently, the liquidity is capped if the exchange feels traders are cornering a particular commodity for high futures profits.
Traders attribute the exchanges’ action to the high volatility in volume. On the NCDEX platform, total turnover for chana in January 2012 contracts jumped to Rs 480 crore on November 30 from a low of Rs 364 crore the previous day. Total turnover in this contract was recorded at Rs 125 crore on November 14. Again, the traded value of chana for delivery in January plunged to Rs 444 crore on December 7 after a peak of Rs 592 crore the previous day.
“The special margin of 10 per cent in chana was imposed on September 30 to curb excessive volatility. Imposition of the special margin on the long side led to a downfall in exchange volumes at the NCDEX from about Rs 2,800 crore a day to around Rs 800- 1,000 crore currently,” said Naveen Mathur, associate director Angel Broking.
Chana prices rose 68 per cent from the lows of Rs 2,198 a quintal since mid-April due to the seasonality pattern and touched a high of Rs 3,700 a quintal on September 26. It is currently at Rs 3,137 a quintal. With the minimum support price of chana up to Rs 2,800 a quintal, futures prices are not expected to fall below this level.
The scenario is likely to prevail in the spot market, too. It is, therefore, reasonable to withdraw the special margin on chana, as prices are trading at lower levels.