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Pratim Ranjan Bose

`Penal action against those involved'

Kolkata. Oct. 22

This Diwali does not augur well for many related to commodity trade. Forward Markets Commission (FMC) has tipped the future commodity exchanges of circular trades at abnormal prices in a host of illiquid commodity counters.

Described as trading profit or loss in the market parlance, illiquid counters — which constitute the bulk of the offerings of any commodity future exchange — often witness circular trading at "abnormal prices" which are not in consistency with the spot or future market prices of the underlying commodity.

Trading Pattern

"While scrutinising the trading pattern in the illiquid counters, we have found traces of significant amount of such abnormal trading done between the same client or clients of a member or between two members of a commodity exchange," an FMC official said.

Accordingly we have asked the exchanges to keep strict vigil on the trading pattern especially in the illiquid counters and take penal action against those involved.

The aim of such trading, sources say, is reducing the income tax impact.

It may be mentioned that the commodity future market has developed a pattern, whereby each exchange retains liquidity in a handful of commodities and the same commodity counters in other exchange generally go unnoticed and reportedly attract the attention of those involved in such abnormal trading.

Disciplinary Actions

Responding to FMC's advice, MCX had issued a notice (MCX/435/2006) on October 13 describing such trades as "Unwarranted, unethical and unbecoming" on the part of a member.

The exchange may levy penalty for non-compliance on per instance basis including initiation of disciplinary actions.

In addition the details of the participants in such abnormal trades will be sent to FMC as and when required, MCX warned.

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

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