FMC raises open position limit of agri commodities

Regulator also cuts daily price limit to 4 per cent.

Trading in agri commodities on the futures platform received a boost following the decision of the Forward Markets Commission (FMC), the commodity markets regulator, to increase the open position limit and reduce the daily price limit on all commodities on Tuesday.

The FMC has decided to cut the daily limit by which a commodity can rise or fall by 2 percentage points to 4 per cent to reduce volatility. The new limit will be effective from February 18, the National Commodity Exchange said in a statement.

The regulator has also raised the absolute number of contracts that exchange members and their clients may hold in farm commodities.

The figures vary by commodity: for sugar it will be doubled to 60,000 contracts. The commission at the same time kept the limit on a single member's share of total open interest in a commodity at 15 per cent, Chairman B C Khatua said.

The move is expected to increase market participation and rationalise the price discovery mechanism.

"Higher position limits are certain to boost the volume of trade and one may see more companies and individuals trading on the exchanges. And limits on price fluctuations will ensure there's less scope for manipulation," said Naveen Mathur, head of research at Angel Commodities Broking Private Ltd.

The enlarged holding limits may help the country's 23 exchanges boost trade in farm commodities after a ban on wheat and lentil trading and curbs on the size of investors' bets stalled growth. Commodities worth Rs 31.6 trillion ($797 billion) were traded between April and January, little changed from a year ago.

Most players said that although the regulator had raised position limits in most commodities, it had also tempered these increases by rationalising positions for clients and trimming daily price limits.

The FMC's decision will raise the volume and turnover of agri commodities on exchanges by at least by 15-20 per cent in the near future. In the medium to long term, it could rise by several times, said Jayant Manglik, head - commodities, Religare Enterprises Ltd.

"The year 2008 is likely to become the 'Year of Commodities'," said Manglik.

Faiyaz Hudani, an agri commodity analyst with Kotak Commodity Services Ltd, said that the sole objective of futures trading - to help hedgers get better price discovery - would be served. Since the open position limit was restricted to very small quantities, small participants used to stay away from futures trading.

"There were only a limited number of participants because of the very low open position limits. But now, more participants would be able to trade in the commodities of their choice," an official with a local broking firm said.

Surprisingly, the earlier low position limits had resulted in very low delivery despite the commodities being available in warehouses. With the limits now raised, the quantity of deliverable commodities would also rise substantially.

In a recent interview with Business Standard, FMC Chairman B C Khatua had said that sending the right message to the market was more important than trading volume and turnover.

According to analysts, this would sent the right message to the market and confirm the government's commitment towards farmers to enable them discover a fair price for their commodities in the futures platform. 

CONTRACT LIMITS Unit in tonnes, cotton in bales
Commodity	OI limit (aggregate all contract months)		OI limit (delivery near month)
	Member	Client	Member	Client
Chana	40,000	10,000	8,000	2,000
Masoor	12,000	4,000	2400	800
Yellow Peas	12,000	4,000	2400	800
Maize	30,000	10,000	6000	2000
Rapeseed / Mustardseed	60,000	20,000	18,000	6000
Soybean	60,000	20,000	18,000	6,000
Soybean	60,000	20,000	18,000	6,000
Refined soya oil	60,000	20,000	18,000	6000
Mentha oil	1500	300	500	100
Sugar - S	60,000	20,000	20,000	7500
Sugar - M	60,000	20,000	20,000	7500
Jeera	1000	300	300	100
Red chilli	4500	1500	1500	500
Pepper	3000	900	1000	300
Raw Jute	24,000	8000	4800	1600
Guargum	3000	1000	600	200
Guar seed	9000	3000	3000	1000
Gur	30,000	10,000	6000	2000
Barley	32,500	6500	6500	1300
Turmeric	9000	3000	1800	600
Rubber	12,000	4,000	5,000	1,250
Potato	45,000	15,000	9,000	3,000
Castor seed	15,000	5,000	3,000	1,000
Groundnut shell	9,000	3,000	1,800	600
Coffee Robusta Cherry AB	2,250	750	450	150
Cotton Long staple 28 mm ( in bales)	60,000	20,000	12,000	4,000
Cotton medium staple ( in bales)	60,000	20,000	12,000	4,000
Groundnut Oil	18,000	6,000	3,600	1,200
Rape Mustard Seed oil Cake	9,000	3,000	1,800	600
RBD, Palmolein	22,500	7,500	4,500	1,500
Sesame seed	9,000	3,000	1,800	600
Cotton Seed Oil Cake - Akola	36,000	12,000	7,200	2,400
Cotton Seed Oil Cake - Kadi	36,000	12,000	7,200	2,400