FMC for stricter penalty on delivery failure

The Forward Markets Commission(FMC) has recommended the government to impose stricter penalty across the board in case of delivery failure.

"There was a concensus among members to impose compulsory delivery. As of now the delivery is the sellers' options and buyers have to depend on the sellers' decision. Once the penalty becomes stringent, which is currently 0.5 per cent, the sellers will have no option but to deliver goods," S Sundareshan, IAS, chairman, FMC said.

A workshop of the member associations and exchanges was organised by FMC on Friday to discuss "Delivery in Futures Market" and related issues. The workshop was attended by Multi Commodity Exchange (MCX), the National Commodity & Derivatives Exchange Ltd (NCDEX) and other single commodity exchanges.

When asked about the proposed growth in penalty, Sundareshan said that members had agreed upon raising the penalty which could be several times more than that of current penalty.

The FMC is planning to form a committee to look after quality and quantity of goods at the point of delivery. The committee will have representations from FMC, MCX, NCDEX and other single commodity exchanges with a maximum 6-7 per cent share from each.

"Currently we have mandatory delivery on sugar, rubber and pepper which would be extended across all commodities once the committee is formed," Sundareshan added.

Members have also agreed upon amending Forward Market Regulations Act under which FMC would have more powers, including financing, apart from powers like introducing options trading, focussing on licenses, invoking powers to gather information from members etc.

The FMC has already started inspecting accounts of members which would be expanded substantially, he added.

Talking about the Verma Committee on Risk Management, Sundareshan said that when the committee meets the next week, the suggestions of the Verma Committee would be considered.

Other topics discussed in the workshop are as follows: strengthening the link between the future and the physical market, need to reduce limit on open position during the spot month per 10 days prior to expiry, dematerialisation of warehouse receipts, accrediation of warehouses, licensed and unlicensed and legal status of the warehouse keepers viz-a-viz exchange and warehouse receipt holder, fixation of premium and discounts based on quality or grades and delivery centres and off market delivery, process of allocating delivery among others.