SEBI may allow commodity futures delivery from sellers’ warehouses

SEBI is considering a proposal to allow commodity futures sellers to deliver goods from their own warehouses, rather than moving them to exchange-accredited warehouses.

Once implemented, the move will cut costs for commodity participants and help widen the market base by letting all warehouses hedge part of their inventory on the exchange platform. A lower delivery cost will also be a major boon.

Multiple costs

While the transport of goods from the sellers’ warehouses to exchange warehouses represents a major cost, other incidental expenditures have also been deterring the delivery of goods on the exchange platforms.

For instance, in the case of rubber, a trader incurs a loading and unloading charge of ₹300 per tonne, storage charge of ₹22 per bundle per month, assaying fee of ₹50 per tonne, insurance and exchange delivery charges of 0.05 per cent and 0.15 per cent respectively and one-time repository fee of ₹1,000. When the delivery is handled from the seller’s warehouse, he has to pay only for assaying and exchange delivery.

Proposed procedure

Under the proposed procedure, a seller has to inform the exchange’s clearing corporation (CC) of his willingness to deliver the goods from his warehouse. The CC will then conduct a quality check of the commodity and demarcate the area in the warehouse where the exchange-deliverable goods are stored.

To ensure the goods are not sold to a third party or tampered with, the CC can enter into a separate agreement with the seller and also collect a bank guarantee.

In places such as the Khanna mandi in Punjab, there are over 200 warehouses, but very few are exchange-accredited. If delivery can happen from all the warehouses, all their owners will show interest in futures trading and help their customers hedge on the exchange platform, said a source who was involved in the discussion.

The quality of goods will not deteriorate within 5-7 days of the deliverable period, he said. However, if the proposal is implemented, the interests of the exchange-accredited warehouses need to be protected, he added.

Note of caution

In a note of caution, he recalled the National Spot Exchange episode, wherein the entire goods stored in a seller’s warehouse vanished overnight after signs of a settlement crisis at the exchange.

Moreover, sources said, warehouse owners tend to wield power in their respective areas, and may therefore bend the law if required.

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