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Further liberalising commodity futures market, the Forward Markets Commission (FMC) has more than doubled the open position limit in agricultural commodities, to increase the depth in terms of participation for genuine hedgers.
Applicable with immediate effect, the commodities derivatives market regulator has set a formula-based open market position and capped at 50 per cent of the estimated production and imports in agri commodities. The member position limit shall be 10 times the client-level position limit or 20 per cent of the market-wide open interest, whichever is higher. The exchanges have been asked to synchronise action on expiry of the current month contracts.
Client-level position limits shall be the numerical position caps as decided from time to time or five per cent of the market-wide open interest, whichever is higher. For the present, the numerical position limits existing shall continue.
“The revision in agri commodities is very much in favour of futures trade, as it would widen the depth for genuine participants who remained capped with numerical position limits in the past. The new limit will at least double client-based and member-based positions,” said Samir Shah, managing director of the National Commodity and Derivatives Exchange.
The FMC circular said near-month limits in case of agri commodities and their products shall be restricted to half the overall position limits. This decision will be reviewed after six months, for progressively moving towards 100 per cent of the overall position limits, with the growth of liquidity and volumes.
In the case of agri commodities and their products, the client-level position limit shall be limited to one per cent of the total production and import. The position shall be netted out at the client level and grossed up at the member level for computing, said FMC.
“Earlier, traders used to take their position through different names, including friends, relatives and benamis, to get maximum exposure. Now, they will be able to trade under one name with true genuineness, resulting in quality trades on the exchange platforms,” said Shah.
The FMC circular said data on genuine hedgers should be kept ready and be produced upon requirement. The regulator has been gradually liberalising commodity futures trading, in phases. Over a week earlier, FMC directed exchanges to change in-contract specifications upon their requirements and apprise the regulator about the changes.
It ordered exchanges to disclose the positions of the top 10 trading clients each on both (buy and sell) sides. The exchange shall disclose the hedge position and delivery intent of hedgers, in addition to pay-in and pay-out of commodities made by the top 10 clients, including hedgers.
To promote hedging and arbitrage, for hedgers/sellers which have made early pay-in of commodities against sale positions even before the staggered delivery period sets in, the quantity so delivered in early pay-in and marked for delivery shall be excluded in computation of the position limits.
Also, to encourage the spread trades, which are offsetting positions between different months in the same contract and provide needed liquidity, the positions in the same contract or contracts on the same commodity shall be netted out. The latter shall be permitted even in near-month contracts, with the offsetting position in the far months, said FMC.
