Sebi curbs on agri futures

Cuts daily price limit, reduces position limit and suspends forward segment

To curb speculative trades in agricultural commodities, Securities and Exchange Board of India (Sebi) on Friday reduced the permitted daily price limit movements from the existing six per cent to four per cent. Position limits for near-month contracts has also been reduced and forward trading in all fresh contracts has been suspended.

The decision comes after a steep price rise in several farm commodities in the futures segment. Last month, the income tax department had raided several commodity brokers and shared the information with the markets regulator.

On the reduction in daily price limits, the initial slab will be two per cent for barley, chilli, jeera and turmeric. After a cooling-off period, another two per cent movement may be permitted. For all other agri commodities, the initial slab is fixed at three per cent and then one per cent. The cooling-off period will be 15 minutes, within which trades will be permitted in the first slab limit. After reaching the maximum four per cent one-side movement in a day, trade will be permitted within that limit only. The changes will come into effect from February 1.

In agri commodity derivatives, client and member near-month position limits have been reduced to 25 per cent from 50 per cent at present. The revised limits apply for all contracts expiring in March and onwards.

Sebi has also suspended the forwards segments, though only the National Commodity and Derivatives Exchange (NCDEX) offers this facility. Forward trades were protected to the extent of 90 per cent of the margin deposited. Existing contracts, said Sebi, may be settled on the contract terms but no new contracts are to be entered into “till further orders”. Suspension of forward segment will also impact ‘GOLD NOW’ contract launched by the NCDEX. NCDEX said it will abide by the Sebi directives.

While NCDEX has a major share in agri commodities trading, even Multi Commodity Exchange (MCX) will face the heat because it has fairly active menthe, cotton and crude palm oil contracts. All three would be impacted because of these measures. National Multi-Commodity Exchange (NMCE), an Ahmedabad based exchange whose market share is much lower, could get worse off.

“Sebi has reduced speculative position limits only and today’s circular has not touched upon hedging limits,” said an exchange official on request of anonymity.

Kunal Shah, head of research at Nirmal Bang Commodities said, “Regulatory action in agri commodities segment will hurt sentiment and liquidity in agri derivative segment.”