Mumbai (c) The Economic Times
05 Oct, 2007
Commodity market regulator Forward Markets Commission (FMC) has decided to lower the penalty for failing to meet delivery obligation on futures contract.
A high penalty was distorting the trading on the last date when contracts mature. The penalty structure encouraged buyers to remain in position, hoping that delivery will not take place which would would force the seller to sell at a loss.
05 Oct, 2007
Commodity market regulator Forward Markets Commission (FMC) has decided to lower the penalty for failing to meet delivery obligation on futures contract.
A high penalty was distorting the trading on the last date when contracts mature. The penalty structure encouraged buyers to remain in position, hoping that delivery will not take place which would would force the seller to sell at a loss.
On the day of maturity, the spot and futures price should ideally converge but this was not happening in some of the commodities.
The penalty has been brought down to half at 2.5%, in addition to the difference between the final settlement price and the spot price prevailing on the last day of the expired contract, if the said spot price was higher than final settlement price, an NCDEX circular said.
NCDEX chief business officer Shrikant Subbarayan said the penalty was distorting the price discovery mechanism and this was pointed out by the hedgers and other participants in the market.
Navneet Damani of Anand Rathi said the buyers will not be willing to hold their position with the revised penalty and this caused liquidation of some of the long positions in the market.
Prices of chilli were impacted the most, hitting a lower circuit. The price should have dropped earlier due to good physical stocks. Other agri commodities that fell on NCDEX were chana, guar seed, pepper, turmeric, mustard while jeera and soy oil were flat and soybean closed higher. On MCX jute, potato and mentha oil slipped.
Even a rising rupee weakened sentiments on some of the commodities, feels research analyst Badruddin from Angel Commodities. "Despite soya oil and crude palm oil prices moving up in the international markets, the prices on NCDEX are subdued because of the strengthening rupee," he said.
He, however, added that soya bean is strong with a good export demand for soya meal, which is still profitable despite appreciating rupee. Out of the commodities traded on the exchanges, India imports pulses and edible oil while exports spices, guar gum, mentha oil. However, Shyamal Gupta from Kotak Commodity Services feels that agri commodities have not been impacted with the rising rupee as they are driven more by fundamentals.
The local currency has further gained to close at 39.49 a dollar against its previous close at 39.58. It’s up 11% since the beginning of the year.
