After NCDEX, FMC asks MCX to act on defaults

After successfully implementing the uniform penalty of 3 per cent for delivery defaults in agri-commodities on the NCDEX platform for six months, the commodity market regulator FMC has now directed the MCX to follow the same punitive method.

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

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 the direction from the FMC, the 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 the MCX has 15 agri-commodities, including potato, coffee, sugar and rubber, which have compulsory delivery options.

According to the FMC, the penalty charges on the 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, one 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.