Financial Daily from THE HINDU group of publications
Thursday, May 19, 2005
Financial Daily from THE HINDU group of publications Thursday, May 19, 2005 |
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Agri-Biz & Commodities
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Commodity Exchanges MCX to introduce spread contracts Dhimant Bhatt
Mumbai , May 18 THE Multi Commodity Exchange of India (MCX) is planning to introduce `spread contracts' in refined soya oil shortly. Spread contracts allows a member to execute two trades simultaneously in two different maturity contracts of the same commodity, by entering a single order. The exchange has scheduled a mock trading on Saturday (May 21, 2005) to test these contracts in the trading system. Time schedule for mock trading would be 4.30 p.m. to 6.00 p.m. "After the round of successful mock trading and number of member participation for spread contracts, we will launch the contracts immediately," Mr Jignesh Shah, Managing Director, MCX, told Business Line. During the mock trading session, three contracts will be available for trading — Refined Soya Oil May June 2005 spread contract, Refined Soya Oil June July 2005 spread contract and Refined Soya Oil May July 2005 spread contract. The spread contracts allow a member to take two separate positions by entering one order, resulting in two trades, one of near-month and the other of far-month. This is used for the purpose of rolling over positions from one contract to another. For instance, Refined Soy Oil May June 2005 spread contract allows a member to shift his position from May 2005 futures contract to June 2005 futures contract. One of the salient features of the spread contracts is that buying a spread contract implies selling near-month futures and buying far-month futures. Similarly, selling means buying near-month maturity contract and selling far month futures contract. The price of the spread contracts would be derived by the price at which the holder of long and short positions are willing to carry over/spread their positions from near-month to far-month. A spread order, once executed, results into trades in two corresponding futures contracts. In the near month, the trade is generated at the previous closing price, while in the subsequent month, it is generated at spread plus near month's previous closing price.
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