Derivatives

Know how concentration margin works

Gurumurthy K BL Research Bureau | Updated on November 21, 2021

The Multi Commodity Exchange Clearing Corporation Limited (MCXCCL) has come out with some revisions in the threshold limit for Concentration Margin on November 3.

So, what is this concentration margin? It is the charge levied if the size of any participant’s position exceeds certain limit of the open interest. A non-agri commodity traded on the MCX will be eligible for concentration margin charges either if its open interest exceeds 5 per cent of the exchange open interest value or if the traded quantity exceeds a specified limit.

For instance, Aluminium will be eligible for levying this charge if the open interest exceeds 16,800 metric tonne (mt). For agri commodities limits are specified. For example, the Crude Palm Oil contract will be eligible for this charge if its open interest exceeds 90,000 mt. For the participants, the concentration margin charges will be levied if the individual’s open interest exceeds a specific slab in a commodity. If the open interest of a participant exceeds the exchange open interest in the range of 10 to 15 per cent then 2.5 per cent for Crude Oil and 1.5 per cent for other commodities will be charged as concentration margin. This is a charge over and above the other applicable margin charges. The limit will be calculated at the end of day everyday and will be made applicable for the next trading day.

Transactions done for the purpose of hedging will be exempted from levying this charge. But relevant documents pertaining to hedging will have to be provided.

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Published on November 20, 2021

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