Open position violation to invite mandatory fine

Traders are headed for a setback in building their open positions through different members beyond the limit specified by the Forward Markets Commission.

National commodities bourses, including National Commodity & Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX), have also confirmed a mandatory penalty, to be effective from September 1 as per the FMC directive, in case the client trades through different trading members.

Since the announcement of the open position limit, volumes and turnovers have plunged across domestic commodity exchanges. The FMC had earlier set limit for almost all commodities, excluding a few for nearby months.

"Now, clients would not be able to cross the specified open position limit at any cost," a market source said.

This is something like: If despite the open interest limit being 1,000 million tonne at the client level for any commodity, the client trades through two members "� X and Y "� at a total position of 1,100 million tonne (500 million tonne via X and 600 million tonne via Y), the penalty will be collected from X and Y in the ratio of 5:6, an NCDEX circular said.

The client-level position limit will be applicable in the combined position for the same client trading through different members, said an MCX notice.

In other words, in the event of a violation, if the client trades through various trading members, the penalty computed will be proportionately collected as per positions from the members through whom the various client IDs trade.

The commodity market in India is at a nascent stage and needs full freedom. Now, the volume restriction will dampen the trader sentiment, another trader said, adding the community has already started looking out for other options.

"The current position limit indicates that the regulator has taken the decision under political pressure without considering the possible impact," a Delhi-based commodity trader said.

Instead of putting a cap on individual, the regulator should put a limit on exchange as has been practised in the international market, a top commodity portal official said.

"This has created a problem not only for individual client but for members also," Suresh Nair of Kotak CSL Research said.