FMC set to liberalise rules on position limits

The Forward Markets Commission (FMC), the commodity market regulator, is in the process of liberalising open position limits in futures trade, which is likely to boost confidence among commodity futures traders. The measures, likely to be introduced by the end of November, are set to boost the agricultural commodity turnover on domestic exchanges.

FMC is looking at reworking near-month positions in some commodities by permitting “early pay-in”. “We are looking at a few options to try and enhance participation and to ensure that genuine hedgers have a better opportunity to hedge their price risks on the futures platforms. We may redefine the very concept of the near-month contract,” said FMC Chairman B C Khatua on the sideline of a seminar on pulses here on Saturday.

In some commodities that are bi-monthly or yearly, the near-month tag and limits are applicable on the contract for a very long period. The new limits are likely to be applied on commodities that have high consumption and large production, Khatua said. “We may allow the near-month position limits to come into effect only in the last 15 days ahead of delivery to give the market a better chance at tapping the price advantages in the near-month contract,” he added.

The new norms, with a revised definition of a near-month contract, will address issues of members’ and clients’ limits, under which traders will be allowed to maximise their trading quantity before the specified time limit. Traders will be permitted to take and give delivery as much as they can. But with the commencement of the near-month period, towards the last few days of the contract, traders will have to conform to the open position limits set by the regulator.

For instance, under the existing norms, open position limits for 28.5-mm cotton futures contracts for the near month on NCDEX are fixed at 12,000 bales for members and 4,000 bales for their clients. Under the existing norms, neither members nor clients are allowed to cross the specified limits. When the new norms come into force, if the near month is defined as the last 10 days of a particular monthly contract, members and clients will be allowed to trade without any restriction in the first 20 days of the contract, while the open position limits will be applicable only for the last 10 days of the contract.