FMC finds huge disparity in open position & trade volume

Indicates the day trading volumes and speculation are in excess of open interest positions, which is not in line with the purpose of commodity futures market as a hedging platform

Commodity market regulator FMC has found huge disparity between the ratio of open interest and the volume of trading in some commodities traded on five national commodity exchanges.

In futures market, 'Open Interest' is the number of outstanding contracts that are held by market participants at the end of trading day. Globally, trading volume and open interests go hand-in-hand on exchanges.

"The Commission has done a preliminary analysis ... And it has been observed that the ratio of open position with the volume of trading in some commodities is very high as compared to the international practices in national exchanges," the Forward Markets Commission (FMC) said in a circular.

The disparity indicates that the day trading volumes and speculation are far in excess of open interest positions, which is not in line with the avowed purpose of use of commodity futures market as a hedging platform, it said.

To understand the situation better, the regulator has directed national commodity bourses -- MCX, NCDEX, NMCE, ACE and ICEX to submit month-wise and year-wise details regarding ratio of open interest with the volume of trade in the top 15 commodities for 2009-10, 2010-11 and 2011-12 fiscal in a week.

It has also asked these exchanges to submit a road map to to bring such ratios at par with the international standards.

Trade analysts said that the trend of high trading volumes and low open interest is not healthy.