Market regulator, the Securities and Exchange Board of India (Sebi), has expanded the horizon of all compulsory delivery contracts under staggered delivery, a move that aims to reduce price manipulation and improve liquidity on commodity exchanges.
Sebi has also cut the minimum staggered delivery period to five days from the existing 10 days, leaving the discretion of fixing the higher number of days on the concerned exchange, depending upon the history of the relevant commodity.
In a circular issued on Friday, Sebi said, “All compulsory delivery commodity futures contracts (agriculture as well as non-agriculture commodities) shall have a staggered delivery period. The minimum staggered delivery period should be five working days”
Staggered delivery period is the period beginning few working days prior to expiry of any contract and ending with expiry, during which sellers / buyers having open position may submit an intention to give / take delivery.
The markets regulator has been consistently liberalising regulations with market-friendly decisions, as it aims to bring in more participants and improve hedging potential on commodity exchanges.
“Sebi has directed all the exchanges to make uniform mechanism in the interest market participants and accordingly make changes in contract specifications (if required). In my view making a uniform staggered delivery mechanism for commodity exchanges will help participants for giving and taking deliveries,” said Manoj Kumar Jain, Director and Head of Commodities, IndiaNivesh.
“The expansion of staggered delivery across all compulsory delivery contracts is a good move which would avail participants with more number of trading days, translating thereby increase in volume of business. It will benefit monthly contracts more than long period contracts,” said Kishore Narne, Associate Director, Motilal Oswal Financial Services Ltd.
In fact, commodity exchanges had requested Sebi to bring the minimum period down to five days to have more number of trading days available.
“The decision will enhance liquidity of commodity exchange,” said Naveen Mathur, Director, Anand Rathi Shares and Stock Brokers Ltd.
In a separate circular, Sebi fixed 25 per cent as maximum cap on exchange’s free reserves for introducing liquidity enhancement scheme (LES) in any options contract. The exchange is allowed to introduce discount or adjustment in fees or cash payment.
The incentives during a financial year shall not exceed 25 per cent of the net profits or 25 per cent of the free reserves of the stock exchange, whichever is higher, Sebi clarified.
While MCX, according to trade sources, have already discontinued LES in options, NCDEX is yet to make any significant gain from this liquidity booster scheme.