The price limit is now 4 per cent on both the upper and lower bands

Commodity market regulator Forward Markets Commission may relax the daily price limit for agricultural commodities on the futures platform. This will be in line with that of non-agricultural commodities such as bullion, metals and energy traded on the exchanges.

Currently, agricultural commodities have a maximum daily price limit of four per cent on both the upper and lower sides. In contrast, bullion and other non-agricultural commodities, the first price limit is six per cent. It gets extended subsequently by three per cent, with a cooling period of 15 minutes.

Phased manner

The price limits for non-agricultural commodities are eased as they derive the prices from international markets.

To start with, the Commission is looking at relaxing the price limits in a phased manner for agricultural commodities such as oil complex, cotton complex and sugar, which tracks the international market trend.

Speaking to Business Line, Ramesh Abhishek, Chairman, Forward Markets Commission said prices in the spot market can move to any extent, but it is restricted on the futures platform.

“There is disparity, as the futures market derives the price from the spot market. We feel price limits in the derivatives market do not allow proper price discovery,” he said.

The Commission feels the mismatch in price movement of spot and futures may lead to price manipulation in the futures contract.

“We have often noticed different kinds of regulations for non agricultural and agricultural commodities. We feel it should be uniform for both. We are now trying to bridge the gap by way of trade timings, daily price limits and other matters,” said Abhishek. Turnover on the commodity exchanges has dropped sharply this fiscal due to transaction tax levy and the ₹5,600-crore scam in the unregulated National Spot Exchange.

In the first eleven months of this fiscal, cumulative turnover on commodity exchanges fell 40 per cent to ₹9,513,600 crore from the ₹15,782,840 crore logged in the same period last year.

In the same period, the turnover of agricultural commodities was down 28 per cent to ₹1,444,964 crore (₹2,020,364 crore) while that of non agricultural commodities were down 44 per cent at ₹4,083,001 crore (₹7,326,211 crore).

(This article was published on March 23, 2014)
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