Commodities

MCX to levy concentration margin to curb volatility, rein in prices

Suresh P Iyengar Mumbai | Updated on May 07, 2021

For re-launched commodity, the threshold Open Interest value will be subject to a minimum of “₹250 crore for narrow and sensitive commodities and ₹500 crore for broad commodities.

To curb volatility and rein in runaway prices, MCX has levied a new concentration margin of one to six per cent on commodity futures from May 17.

For re-launched commodity, the threshold Open Interest value will be subject to a minimum of “₹250 crore for narrow and sensitive commodities and ₹500 crore for broad commodities. These minimum thresholds will be applicable for one year from the launch of contracts in a new and re-launched commodity, said the exchange.

The concentration margin is levied to discourage a single or group of investors try to corner the available floating stock in the market to boost prices artificially.

New margin

The new margin on aluminium, copper, cotton, crude palm oil, gold, kapas, lead, natural gas, nickel, rubber, silver and zinc will range between one to four per cent, if the client open interest account for 5 per cent 25 per cent of the open interest of the exchange in value.

Similarly, for crude oil, the highest margin would be six per cent if the open interest touch 25 per cent. For all other commodities, the margin would be up to five per cent depending on the open interest.

The concentration margin shall be calculated at the end of the each day, and shall be applicable for the next trading day till the end of day and shall remain blocked from the available collateral deposits of the member, said the exchange.

The concentration margin will be over and above all other applicable margins.

For clients who have submitted documents for hedge limits and have been allocated Hedge Code, the levy of margin would be excluded for the specified positions in Hedge Code.

Client’s commodity level open interest shall be computed as netted position across contracts and variants, said MCX.

In addition to client level concentration margins, clearing member level concentration margins will also be applicable based on the defined slabs. Clearing member’s commodity level open interest will be computed separately, it added.

Published on May 07, 2021

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