MCX to fine abnormal trades

Taking one of the most stringent precautionary measures in the commodities futures trade, the Multi Commodity Exchange (MCX) has levied a penalty of Rs 5,000 for any abnormal trade recorded on its platform, a press note said.

Effective December 18, the action is primarily meant for avoiding any possibility of price manipulation in illiquid commodities where the spread between bid and ask is long.

Multiple instances of such trades by a member will be viewed seriously by the exchange, which reserves the right to impose additional penalty and take additional disciplinary actions, the note added.

The exchange has noticed that some of the trades have been executed at abnormally high price differences in illiquid commodities between different or same clients of the same member or between two members, which may be described as abnormal trades.

"There is little room for price manipulation in most liquid commodities, where the spread between bid and ask is as low as the tick size of the contract. Hence, there is a potential for such practice in illiquid commodities," an analyst said.

There are about 70 active commodities being traded on the MCX and a few of them are illiquid.

Finding limited room for price manipulation in active commodities due to the limits on open interest and traded volume, traders may move towards illiquid commodities and buy at normal price and sell at abnormal one.

This measure would restrict members not to trade with vested interest, a trader said.