In a rare such instance, the Forward Markets Commission (FMC) has granted conditional approval to launch mustard seed contracts on the National Board of Trade (NBoT), an Indore-based regional commodity exchange.
Unlike in all other cases, where approval is granted for 12 forward months and beyond, the derivatives market regulator has approved only three contracts in the case of mustard seed for NBoT. In a note dated December 10, it allowed the exchange to launch contracts for delivery in January 2013, April 2013 and May 2013. It said NBoT could introduce these contracts from a date as decided by its board, subject to the provisions of the by-laws of the exchange.
Trading in mustard seed was discontinued on NBoT from October 1, after expiry of the existing approval from the regulator. All national and regional commodity exchanges have to take fresh approvals for the launch of any new contract and NBoT applied around four months earlier.
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“The regulator wanted some changes in the contracts, which we carried out, and re-submitted our request. Hence, the delay was from the regulator’s side. But, it is good our members would have one more commodity for trading with a diversified portfolio,” said Jeyakumar A S, executive director of NBoT. The exchange is set to call its board meeting soon, to decide on the re-launch.
FMC, however, has imposed conditions with this approval. The exchange would have to ensure the launch doesn’t result in excessive unhealthy speculation and it would have to get the recognition extended for a further period. If trading in the contracts at issue do result in excessive unhealthy speculation, FMC says it would impose ‘stern measures’. The exchange is required to give a monthly report, in addition to details of trading activities at the close of business every day.
“Mustard seed is traded on our platform for the last several years. Our members lost interest in this counter in the last few months due to internal issues. All issues, however, have been resolved now, which we have already informed to FMC. We are confident of getting traders’ interest now,” said Jeyakumar.
The exchange currently facilitates trade on soybean and refined soya oil and generates a fortnightly turnover of around Rs 500 crore.
Apparently, the recognition and registration for mustard seed on NBoT is set to expire on May 31, 2013. Hence, FMC asked NBoT to take necessary action to get the recognition and registration extended. If the extension isn’t granted, all the running contracts in mustard seed shall be closed on this date and the open positions due at the closure of trading hours on May 31, 2013, would be settled in line with the clearing rate fixed for that date, FMC said.
Jeyakumar termed the extension in recognition of mustard seed a routine development, which would be done without any hassle. “We will initiate it immediately after launching these contracts on our platform,” he said.
The mustard seed contract scheduled to be launched on NBoT would be based on the seller’s option for its delivery. The minimum deliverable quantity is set at 10 tonnes.
