The commodity markets regulator the Forward Markets Commission (FMC) is in the process liberalising open position limits which are likely to boost traders’ confidence towards futures trading on local exchanges.
The step, likely to be introduced by the end of November, is seen as a measure to boost agriculture commodity trade on domestic exchanges.
Agriculture commodities turnover on the three national exchanges MCX, NCDEX and NMCE nosedived 34.31% to Rs 34461.19 cr during October 2008 as compared from Rs 52463.12 cr in the same month last year.
The new norms with revised definition of “near month” will address the issues of clients’ and members’ limits under which traders would be allowed to maximise their trading quantity before the specified time limit.
Traders would be permitted to take and give delivery as much as they can. But, with the commencement of “near month” period, traders would have to bring their open position within the limit of existing norms.
For example, under the existing norms, open position limits for 28.5 mm cotton futures contracts on NCDEX are fixed at 60,000 bales (170 kgs each) and 20,000 bales for members and clients respectively for far month contracts.
While the same limits for near month i.e. for immediate next delivery contract is kept at 12,000 bales and 4,000 bales respectively. Under the existing norms, neither members nor clients are allowed to cross over the specified limit.
But, if the “near month” is defined as 10 days for monthly contracts towards the end of expiry date, the initial 20 days of the contract would be allowed for traders to trade maximum quantity allowed for far months contracts. But, exactly 10-days before the expiry date, traders would have to settle price of quantity above the near month specified limit, if any.
But, problems like settlement price and delivery default might arise in case price behaviour changes exponentially.
“The FMC is currently working on issues like settlement price, early delivery and mandatory early pay-in,” said B C Khatua, chairman, FMC in the sideline of a pulses seminar here on Saturday.
Currently, many traders deal in a number of commodities in small quantities because of regulatory constraints. But, as many traders possess adequate domain knowledge in one or two commodities, they could not take right decision in additional commodities resulting into losses, said a pulses trader.
