FMC wants higher deliveries in futures

MUMBAI: The commodity market regulator FMC is taking steps to increase delivery volumes in the futures market where a bulk of the trade is settled in cash. It has decided to allow delivery of bulk commodities like sugar which are traded on the commodity futures exchanges, from warehouses or factory premises of the mills.

At present, deliveries take place through exchange accredited warehouses which involve a higher cost.
According to Rajeev Agarwal, member, FMC, these premises may be declared as accredited warehouses by the exchanges only after they follow certain checks and balances. ���All norms and supervisory controls should be strictly followed so that credibility of the warehouse is not compromised in the eyes of the market participants,��� he said.

Mr Agarwal said that the scheme has been approved and now the exchanges have to formalise the process of accreditation. He further said that commodities whose production is not less than one million tonne will be considered as bulk commodities. The National Commodity and Derivatives Exchange (NCDEX) has proposed this to the regulator for sugar, its widely traded commodity.

Under the guidelines, exchange accredited warehouses need to be within 50 km from the municipal limits. The FMC has relaxed this provision: even factories or warehouses located beyond 50 km can be treated as satellite warehouses of the accredited warehouse.

���All the goods in satellite warehouses would be counted as the good in DMAT account of the accredited warehouse,��� said the FMC official. These goods need not be lifted from the satellite warehouses till they are marked for delivery, he added.

In order to broaden the scope of delivery and improve market participation, the commission had announced an early delivery system in January for three commodities ��� pepper, rubber and mentha. Under the scheme, the near month open interest position of the particular futures is the quantity that has to be delivered. This holds for the last seven days before the contract expires.

Before that delivery volumes are determined by the normal position limits. Here, delivery takes place between 14 days before the contract expiry and seven days before the expiry. This scheme will enable higher deliveries during this period. Earlier all outstanding positions had to be delivered during the last settlement day when the contract expired.

According to market participants, the imposition of near month position limits did not go down well with players like Nafed, Hafed and pepper traders who could not deliver or procure substantial quantities. The scheme has been initiated from February. Mr Agarwal said it may be extended to other commodities after taking into account the March delivery data.