The Hindu Business Line : NCDEX, MCX interpret FMC order differently

Eye of storm
MCX barred positions in WTI crude contract
NCDEX allowed positions in Brent contract
FMC does not make its directives public

Kolkata , Aug 17

Can there be two sets of rules for similar futures contracts on crude oil floated by the NCDEX and the MCX? Apparently there are, because the two exchanges are reportedly interpreting a circular issued by the Forward Markets Commission (FMC) in two different ways.

For broker members and investors, there is no way but to accept the directives of the respective exchanges, as the FMC does not make its directives public.

In May this year, the FMC asked the commodity exchanges to bar members from taking fresh open interest positions during the delivery period or at least during the last five days of expiry of the forward contracts.

The move was presumably aimed at restricting speculative interests from rigging commodity prices, especially those of agri-commodities.

According to an MCX circular on July 21, the directive is applicable on all kinds of contracts (including sellers or `both option') other than those having compulsory delivery option. Forward contracts on WTI crude, being `both option' contracts, were subjected to this regulation.

The NCDEX, however, did not issue any such official communication.

It allowed its members to increase fresh open interest positions during the last five days of the Brent contract that expired on August 16.

According to the broking community, both the Brent crude contract of the NCDEX and the WTI crude contract of MCX are technically similar `both option' contracts.

According to one view, the NCDEX has informally briefed its members that the directive is not applicable on commodities having international price benchmarks, such as crude oil.

When contacted by Business Line, the NCDEX did not explain why crude contracts should be kept outside the purview of the said restrictions.

"As per the FMC directive, members are not allowed to create fresh positions during last five days before the expiry for all contracts with seller's right to deliver and contracts where delivery is based on intention matching," it said.

The MCX, on the other hand, said that it is levying penalties on members who had violated the directive.

The FMC's views on the issue were not available.

More Stories on : Regulatory Bodies & Rulings | Petroleum | Commodity Exchanges

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