With the cut in open interest (OI) in widely traded agricultural commodities hurting growth, the Forward Markets Commission (FMC) has restored the pre-cut position limit in two of four agri commodities effective this Wednesday.
Open position or OI is the maximum quantity a trader can hold in his account for futures actions. To reduce volatility in soybean, refined soy oil, chana and rape seed/mustard seed, the commodity derivatives market regulator had cut the OI limits for both clients and members. It had also restricted traders from holding more than a specified quantity of these commodities across all exchanges. This means the quantity of OI was reduced from “individual exchanges” to “across all exchanges”.
The overall client-wise maximum OI in soybean and refined soy oil was cut to 20,000 tonnes and 17,000 tonnes on April 10 from 30,000 tonnes and 25,000 tonnes, respectively. For the near month, it was brought down to 5,400 and 4,000 tonnes from 8,000 tonnes and 6,000 tonnes, respectively.
The overall member-wise aggregate limit for all contracts has now been restored to 150,000 tonnes from 100,000 tonnes earlier in soybean and to 85,000 tonnes from 125,000 tonnes earlier in refined soy oil contracts. “The rise in OI would bring more depth in the market, where traders would have additional quantity to hedge their risk,” said Dilip Bhatia, chief executive of Ace Derivatives & Commodity Exchange.
Soybean, a kharif crop, is currently being harvested. The Soybean Processors’ Association estimates a new record in output at 12.5 million tonnes as compared to 11 mt last year, despite a two – month delay in monsoon rainfall. Hence, the scenario for soybean and refined soy oil is clear.
Apparently, FMC has not restored OI in chana and RM seed, the two rabi crops in which sowing is currently on. The regulator might be waiting for a clear indication of output for a final decision in these two commodities. Meanwhile, price volatility in all four commodities had come down in the past six months, with frequent regulatory interventions.
According to Naveen Mathur, associate director of Angel Broking, the near month as well as aggregate open position limits were reduced for soybean and refined soy oil in April to curtail the excess volatility and to avoid cornering of stocks.
However, considering the normal conditions in the past two months, FMC has again revised these position limits upward. This would definitely help in bringing more participation and, thereby, depth in the market, he added.
| BACK TO NORMAL | ||||||
| Applicable from April 10, ‘12 April 10, ‘12 (Client level) | Before April 10, ‘12 (Client level) | Near-month Applicable from April 10, ‘12 (Client level) | Near-month Applicable from April 10, ‘12 (Client level) | Applicable from Oct 10, ‘12 (Client level) | Applicable from Oct 10, ‘12 (Client level) | |
| Overall | Near-month | Overall | Near-month | |||
| Chana | 15,000 | 20,000 | 3,000 | 4,000 | No change | No change |
| RM seed | 15,000 | 25,000 | 4,200 | 7,000 | No Change | No Change |
| Soybean* | 20,000 | 30,000 | 5,400 | 8,000 | 30,000 | 8,000 |
| Refined soy oil* | 17,000 | 25,000 | 4,000 | 6,000 | 25,000 | 6,000 |
| * The limits have been made exchange-wise and not across exchanges (Figures in tonnes) For chana and RM seed, the limits are still across exchanges | ||||||
