The Hindu Business Line : FMC fixes new norms for `narrow' commodities

The guidelines apply for chana, tur, urad, guarseed, guargum, mentha oil and sugar
Bourses have been asked to amend the contract designs, rules, regulations and by-laws

Mumbai , Feb. 2

THE Forward Markets Commission (FMC) on Thursday introduced some changes to the regulatory measures and contract designs for "narrow"commodities such as chana, tur, urad, guarseed, guargum, mentha oil and sugar.

The guidelines have been conveyed to the three national exchanges, according to a release issued from the commission.

The exchanges were asked to amend the contract designs, rules, regulations and by-laws to introduce these changes. FMC has also advised them to comply within 10 days, the release said.

Sharp volatility as well as divergence with the spot price was observed in futures prices of some of the "narrow (above-mentioned) commodities" towards the expiry of contract.

The major changes announced by the regulator are as follows: The limit on open position may be restricted to one-tenth of the existing limit on open position for the near month contract. This reduction would be consistent with international practices. This would be applicable for all contracts of the above commodities from March onwards. With this, the earlier direction of not permitting additional open position by operators stands withdrawn in respect of contracts in above commodities from March.

The exchange should require sellers to give their intention/notice at least five days before the expiry of the contract. The delivery centre-wise quantities intended to be delivered by the sellers should be disseminated by the exchanges at least four days before the expiry of the contract with immediate effect.

The exchanges should also ensure wide publicity/dissemination of quantity of goods of deliverable grades lying in the accredited warehouses on a daily basis at least for the last 15 days of the contract.

Penalties collected from the defaulting participants would not be passed on to the opposite parties. The exchange would set up an "Investor Protection Fund'' for meeting the pre-specified liabilities including liabilities arising out of defaults by members. The penalty amount would be deposited to this fund after deducting a maximum of 5 per cent of the penalty amount towards the administrative expenses incurred by the exchanges with immediate effect.

The exchanges should delete the delivery centres, which are outside the radius of 300 km from the main delivery centres. This would apply to all contracts maturing after March. The exchanges should review on a monthly basis the prices polled by the participants to identify participants habitually polling extreme/unrealistic prices. These participants could be put under watch, and deleted from the panel if such instances recur despite suitable communications by exchanges/agencies. This should be implemented with immediate effect.

Exchanges/external agencies would also double the sample size currently used for fixing the daily spot prices, during the last 15 days of the contract with immediate effect.

The external agencies would also be advised to fix the spot prices after taking into account the normal variations in the spot prices of different delivery centres.

The exchanges would also give a formula/procedure to be followed by the polling agencies for fixing the spot prices, which would be based on the normal parities between the spot price at the main delivery centres and at other delivery centres.

This process should invariably be adopted for at least 15 days prior to the expiry of the contract. This becomes applicable with immediate effect.