Act on delivery defaults: Regulator asks MCX

After successfully implementing the uniform penalty of 3 per cent for delivery defaults in agri-commodities on the National Commodities and Derivatives Exchange (NCDEX) platform for six months, the commodity market regulator has now directed the Multi-Commodity Exchange (MCX) to follow the same punitive method.

Forward Markets Commission (FMC) Chairman B C Khatua said, “Earlier, penalty charges varied depending on agri-commodities. We tried introducing the uniform penalty of 3 per cent on NCDEX for some time. After seeing the success, we asked the MCX to follow the same structure.”

The penalty revision will apply mostly on the compulsory delivery contracts of farm commodities, he said. The regulator, however, said the revised penalty system is not required for the Ahmedabad-based National Multi-Commodities Exchange.

According to direction the regulator, MCX has issued a circular saying that it would apply the revised penalty charges on all contracts for agriculture commodities (except cardamom) having a compulsory delivery option launched on or after February 11.

Currently, MCX has 15 agri-commodities, including potato, coffee, sugar and rubber, which have compulsory delivery options.

FMC said the penalty charges on MCX have been revised to 3 per cent of the contract value from the earlier 2.5 per cent if the seller defaults on delivery in agricultural commodities.

Besides, defaulters would have to pay the difference between the final settlement price and the average of three highest spot prices ruling five days prior to the closing of the contract.

Experts are of the opinion that such uniform penalty would deter defaults on the exchange and will help in enforcing a compulsory delivery of the commodities.

According to the MCX circular, of the 3 per cent penalty collected from defaulters, 1.75 per cent would go to the Investor Protection Fund of the exchange, 1 per cent to the buyer entitled to receive delivery and the balance 0.25 per cent would be retained by the exchange for administrative expenses.