NCDEX seeks 3-day contracts

Has sought FMC approval for 3-day futures contracts in chana, urad, gold and sugar.

The National Commodity and Derivatives Exchange (NCDEX) has sought the approval of the commodities regulator Forward Markets Commission (FMC) to launch 3-day futures contracts in chana, urad, gold and sugar, sources said.

An FMC official confirmed that NCDEX has sought nod to launch the three-day contracts on a trial basis. However, the official said that the regulator has sought "certain" clarifications on the matter.

The regulator has expressed doubts as to whether the exchange will be able to manage 25 deliveries in a month while it is facing trouble managing delivery once a month.

Also, the determination of spot price of the commodity for the day is important for the success of small-duration contract.

When contacted, FMC member Kewal Ram said, "On Wednesday, a definite way to finalise the day's spot price is required than anything else. We are seeking inputs from the entire commodities market players on this. This is necessary prior to introducing short-term contracts."

The regulator has further asked the exchange to also look into mechanisms like introduction of compulsory delivery, stringent measures, like higher penalty, against defaulters, be it buyer or seller and introduction of auction mechanism, which can help manage the futures market in a better way.

Earlier, a short duration contract (T+2, that is two-day) at the Ahmedabad-based National Multi-Commodity Exchange (NMCE) had failed, said the official.

The two-day settlement did not work as it needed spot prices to be determined without any speculation and this was not happening, said an industry source.

Even in case of the Multi-Commodity Exchange of India's T+7 gold contract (that is, a seven-day contract called Igold), the response has not been promising.

Analysts and traders, however, feel that Igold may soon begin giving higher volumes as in case of gold, spot prices cannot be rigged.

The exchange had made a presentation to senior FMC officials earlier this month and will be approaching the regulator again on the matter, said sources at the NCDEX.

The commodities for which the exchange has sought short-term contracts have been giving good volumes. Chana and urad have been giving top two volumes to the NCDEX for the last four months now.

Sugar futures too have been among the top ten volumes on NCDEX and sounds quite promising in the current market scenario for the commodity.

As for gold, it has helped MCX become India's number one exchange on Wednesday and is the world's third largest commodity to be traded on the futures after crude oil and natural gas.