The Forward Markets Commission (FMC) that regulates the commodity markets has given MCX the permission to launch ‘last-traded price-based calendar spread’ in gold.
In response to an MCX letter, the Commission said that it has ‘no objection’ to provide “Last Traded Price (LTP) based calendar spread” trading facility to market participants in gold up to December 2013 contracts and crude oil up to June 2013, subject to the contract specifications as approved by FMC.
FMC also granted permission to launch LTP-based calendar spread in gold Mini (100 gm), gold guinea (8 gm), gold petal (1 gm) (Mumbai and Delhi), silver (30 kg), silver mini (5 kg), silver micro (1 kg) and natural gas contract that expire in December 2012. The facility is permitted only for contracts in the same commodity with different expiry months, said the FMC.
A calendar spread means taking opposite positions in futures contract of the same commodity with different expiry dates. For example, an investor will buy July gold contracts, while simultaneously selling November contracts in order to take advantage of changes in the relationship between the two contract months.
Keywords: Forward Markets Commission, commodity markets, MCX, permission, launch, last-traded price-based calendar spread, gold
Comments:
FMC has permitted spread trading to MCX either because of its naiveity
or complicity. Spread trading results in sharp reduction of margin cost
to participants, particularly the badla operators. Since MCX is almost
in monopolistic position in metals - both precious and others - and
energy, lower margin and lower bid-ask spread would create impeccable
competitive barriers for other exchanges. FMC has paved way for creating
monopoly in commodity-exchange space.
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