FMC pares circuit filter to 4%

The Forward Markets Commission (FMC), the commodities market regulator, has directed the commodity exchanges to bring down the circuit filter (maximum price volatility) in rubber to 4 per cent from 9 per cent earlier, effective July 2.

According to an FMC circular, the initial price volatility has been set at 2 per cent from the previous level of 6 per cent.

There will be a 15 minutes' cooling period, when the prices rise or fall by 2 per cent. The trading would be stopped for rest of the day, if the prices move either up or down by another 2 per cent.

"If the regulator continues to hit hard like this, we would have a very tough time ahead as the action would have a direct bearing on the exchange turnover," said an NMCE official.

The NMCE clocks the highest turnover in the rubber futures. The exchange witnesses an average daily turnover of Rs 15 crore in rubber futures in comparison with Rs 1.5-2 crore on the other exchanges.

The FMC action offered little room for speculators to hedge their risks in the rubber market as the prices would flare up if they booked orders.

Similarly, in case of profit-booking, they would require to go slow. In case of heavy price movements in either direction, the domestic traders would have little chance to square off their positions as the commodity is linked to the international market, said the official.

Speaking on the FMC move, an analyst said that the regulator might be considering liquidating the illiquid commodities by limiting positions in the liquid commodities. But, traders would not deal with those commodities that they are not comfortable with, an analyst said.

Ultimately, traders would have limited breathing space in the rubber market, which may be reflected in the turnover of the exchanges in the future, the analyst said.