FMC exempts hedgers from margins in agri commodities

Hedgers different from traders and speculators on exchange platform and facility granted is for agri commodities

In a move to increase participation in commodity futures, the regulator, Forward Markets Commission (FMC), has decided to exempt hedgers from initial, additional and special margins in agricultural commodities. This will come into effect from February. Hedgers are traders and manufacturers with a deal in which delivery is to be made at some point. They hedge price risk at the current price and square off the transaction when their physical market deal is closed.

For example an importers expecting delivery after a month can lock the selling price which they receive after a month on the futures market while making import contract.

The Commission has been considering several measures to incentivize the participation of hedgers in the commodity futures markets. Now it has granted exemption from the payment of initial/ additional/special margins for the hedgers to reduce the cost of hedging.

This was discussed and deliberated upon by the FMC’s newly constituted Risk Management Group (RMG) in its first meeting held on 18th November, 2013.

According to the circular issued by the FMC, the RMG has recommended that if a hedger has made early pay in of commodity, then he may be exempted from paying the risk margins.

The Commission said in its directives to the national exchanges, “that they may exempt the market participants, who have deposited certified goods against all the relevant futures contracts sold and earmarked for delivery, to the Exchange accredited warehouse, from paying initial, additional and special margins. Such participants will continue to remain exempted from payment of delivery margins. However, the Exchange shall continue to collect mark to market margins from such market participants.” The new facility will come in to effect from 1st February.