FMC flags disparity in open position and volumes

Forward Markets Commission (FMC), the commodity markets regulator, has found a huge disparity between the ratio of open interest and trade volumes in some products traded on the five national commodity exchanges. In the futures market, open interest is the number of outstanding contracts held by market participants at the end of the trading day. Globally, trading volume and open interest go hand-in-hand on exchanges.

“The Commission has done a preliminary analysis...it has been observed the ratio of open position and the volume of trading in some commodities is very high, compared to the international practices in national exchanges,” FMC said.

 

The disparity indicated the day trading volumes and speculation were far in excess of open interest positions, which were not in line with the avowed purpose of using the 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 file in a week the monthly and yearly details of the ratio of open interest and trade volume in the top 15 commodities for financial years 2009-10, 2010-11 and 2011-12 . It has also asked these exchanges to submit a road map to bring such ratios on par with international standards.