Futures contract to have mandatory delivery system

A mandatory system of delivery would be implemented in the futures contract trading in India, said S Sundaresan, chairman, Forward Markets Commission (FMC). According to Sundaresan, this will curtail speculative business in futures trading.

Addressing a press conference, he said a penalty of 5 per cent would be imposed on not taking delivery on due date and the amount would be calculated on the basis of price of the commodity on due date.

FMC had discussed the issue with all major exchanges and a committee had been empowered to sort out the issues including lack of warehousing facility and quality of commodities. For some items like crude oil, there would be exemption for compulsory delivery, he added.

Some exchanges have already commenced this system and within two months time the system will be put in place. At present the rate of delivery in commodities futures trading in India is 1-2 per cent which is at par with global standards.

He also said that a few more steps would be implemented in order to strengthen futures market and deliver its advantages to the farmer community.

"To curtail large volatility in prices, there should be uniformity in price movement in all exchanges and a circuit breaker system should be in place. A uniform system for limit on the positions would also be implemented," he added.

Performance audit by an outside agency will be made compulsory for all exchanges. All the members of the exchanges should be registered with FMC within next two months in order to ensure financial and business integrity of the exchanges and it's members.

The bill to give autonomy to FMC in line with Sebi will be introduced in the winter session of the parliament and forward contracts regulation act of 1952 would be revamped thoroughly through the bill.

He said that a much stronger legal system should be evolved and in such a system only this mechanism would work for the benefit of all concerned especially to growers.