FMC mulls wider open limits for non-agri commodities

The Forward Markets Commission (FMC), the regulator of the commodity markets, has proposes to adopt market correction measures such as special margins or widening the open position limits for non-agricultural products.

Currently, these are mostly used to check volatile and speculative trading in agri-commodities. However, say officials, pointing to the trade in precious metals such as gold or silver and in base metals such as copper, these sometimes become far more speculative than based on real demand and supply dynamics.

“India remains a major demand driver in, among others, especially gold or silver. Even in base metals, compared to global industrial activity, the Indian scenario does create demand,” said an official source. There is often a concern that heavy speculative trading on commodity exchanges for non-agri commodities might be getting camouflaged behind the excuse of international prices, said sources. There are instances in gold and silver when international prices are down but prices on commodity exchanges here remained sky-high.

 

Officials also cited the recent observation on the high ratio of open positions to trading volume in the case of precious and base metals. In such cases, it is way above the international norm of 30-40 per cent. At the beginning of this month, FMC had asked these exchanges for a schedule to bring such ratios at par with international ones. It also directed national commodity exchanges to file month-wise and year-wise details, in a week, regarding the ratio of open interest (OI) with the volume of trade in the top 15 commodities for 2009-10, 2010-11 and 2011-12.

The development follows the FMC observation of huge disparity between the ratio of OI and the volume of trading in some commodities traded on five national commodity exchanges. In futures markets, OI is the number of contracts held by market participants at the end of the trading day. Globally, the ratio of OI to the trading volume figure is 25-30 per cent for agri commodities and 30-40 per cent for the non-agri category, said official sources. To curb the volatility in agri commodities, FMC had been using special margins and additional margin requirements quite frequently.