FMC proposes to relax price limits for agri commodities

The Forward Markets Commission has proposed relaxation of daily price limits (like circuit limits) for agricultural commodities traded in the evening session on commodity exchanges. There are 10 such commodities. It has sought reaction by April 21.

In a discussion paper issued on Friday, it has said: ‘It is proposed that the initial daily price limits (DPL) for agri commodities contracts be fixed at four per cent, after breach of which, there will be a cooling-off period of 15 minutes and the DPL shall be relaxed once by two per cent. Further, if the DPL is hit on a day, the DPL on the subsequent day may be further relaxed and could be 4+2+3 (per cent), with a cooling-off period of 15 minutes in between the breach of DPL.’  

Following the practice in the securities markets, FMC has also decided to issue discussions papers on sensitive issues before taking a decision. In equity derivatives, there are no daily price limits or circuits. FMC’s paper has said the logic is that in the case of internationally referenciable commodities, such limits will work detrimentally to those who have to cut positions and in case of other agri commodities, whenever there is huge volatility, circuits will apply virtually on daily bases till the desired price is arrived at, which will hurt those who have to square off positions.