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Forward contracts, launched last week, on the National Commodity and Derivatives Exchange (NCDEX have opened a revenue stream of revenue to the exchange’s 800 existing members, given free membership in the forward trade segment.
Trading volume in the futures market has more than halved in the last one year, largely due to the imposition of the commodity transaction tax and a sharp fall in most commodity prices besides the problems arising out of the National Spot Exchange Ltd default.
Besides existing members, the Exchange received application for membership from two farmer produce organisations, who will have to pay only the annual membership fee of ₹5,000, unlike other commodity participant members who need to have a net worth of ₹5 lakh and pay one time non-refundable admission fee of ₹50,000 and annual membership fees of ₹10,000.
Farmers, traders and companies involved in food processing are attracted by forward contracts, as the exchange is the counter guarantor and provides assurance of financial compensation in case of any default. In a few cases, the margin money collected is as high as 90 per cent, and marked-to-market margin triggers in according to the risk perception of the exchange.
In case of default, the exchange pays 80 per cent of the defaulters’ margin to the counter party, and gets to retain 10 per cent.
Speaking to BusinessLine , Samir Shah, Managing Director, NCDEX, said the response to forward contracts has been encouraging. He said that the exchange is getting calls from farmers to include more commodities. With regards to the safety net, he said failure to pay the marked-to-margin when called for would also be considered as a default, and the contract would be wound up immediately.
This is done to ensure that the stiff penalty acts as a deterrent, he said. The exchange currently has launched trading in sugar and maize in the forward segment, and expects to add cotton, crude, refined palmolein and gold soon.
Participants can also sell forward without owning the goods, but have to ensure the quality and quantity of goods at the time of delivery. The contract period can range between 12 and 180 days.
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