Financial soundness to determine members' open position limits: FMC

FMC seeks stakeholders' opinion, ready for review

The financial capacity of members could soon determine the open position limits for trading in various agri- and non-agri commodities on futures exchanges, if the Forward Markets Commission (FMC), the commodity derivatives market regulator, has its way.

In a notice on its website, FMC said it proposed to review limits according to the financial soundness and capacity of members as reflected in their net worth, the number of CTCL (computer-to-computer-link terminals), number of clients, etc. It said uniform position limits for all members of exchanges irrespective of the above factors is not in the interest of market regulation or development.

FMC will accept comments from commodity-linked entities as well as individuals till June 15. Currently, open position limit for all members stands uniform, irrespective of their client size, financial soundness and handling capacity.

“In this context, suggestions are invited from stakeholders, participants etc on the aforesaid criteria and any other criteria that may be considered for determining open position limits for the different categories of members’ along with the detailed reasons/justifications for the same,” the notice noted. FMC has been fixing the open position limits for various agricultural and non-agricultural futures contracts traded on the platforms of the exchanges.

The open position limits are fixed separately for clients and members as a measure of maintaining market integrity and to prevent cartelisation.

These open position limits are determined on the basis of production level / availability of a commodity in a year.

These limits are also reviewed from time-to-time, considering the physical market size of the commodities, past performance of contracts, and volatility in the prices.