Higher margins, position limits take spice out of pepper trade
Pepper futures trading at the commodity exchanges have been affected after the commodities regulator FMC imposed higher margins and lowered position limits.
By NIDHI SHARMA, TNN |
MUMBAI: Pepper futures trading at the commodity exchanges have been affected after the commodities regulator FMC imposed higher margins and lowered position limits. The participants in the market are waiting for the FMC to take some action in this connection.
In a move to curb volatility FMC had in April increased the margins on pepper to 20% and 25% on short and long positions from 9.5% and 11% respectively. In May, it reduced the open positions limits to 1,500 tonne for a member and 500 tonne for a client. This was effective from June 16 onwards. It also put restrictions on near-month position limits at 300 tonne and 100 tonne for members and client, respectively, applicable on contracts from July onwards.
NCDEX Head Products Shrikant Subbarayan said that the exchange has received representations from various trade lobbies. "We will request the FMC to revisit the imposition of margins and reduction in position limits as the exchange warehouse has sufficient stocks to ensure that no price manipulation can take place," Subbarayan said.
Various trade bodies have said that while the participation from retail traders, hedgers and arbitrageurs have been affected, it could also impact delivery.
Spices exporter Sibi K Thomas argued that quantitative restrictions cannot be placed on running contracts. "Putting restriction on the near month position limits is not done with the right intention," Thomas said.
When contacted, FMC Member Rajeev Agrawal said the regulator has received representations and is examining the issue.
"There is a panic among the investors... With such high margins, they are being discouraged to trade in the commodity," NMCE vice-president (business development) Poonam Gupta said.
Some members of the NCDEX product committee on black pepper had in a letter to FMC called for revoking of additional margins and removal of the restrictions on near-month contract. The members had pointed out that while exporters are allowed to take position beyond the prescribed limit (on the back of export orders), they are not allowed to deliver more than 100 tonne.
They said if restrictions are imposed on near-month contracts, it would be easier for a group of speculators to rig the market in the last 29 days of trading of the near-month contract as they would almost be able to conclude the deliveries.
In a move to curb volatility FMC had in April increased the margins on pepper to 20% and 25% on short and long positions from 9.5% and 11% respectively. In May, it reduced the open positions limits to 1,500 tonne for a member and 500 tonne for a client. This was effective from June 16 onwards. It also put restrictions on near-month position limits at 300 tonne and 100 tonne for members and client, respectively, applicable on contracts from July onwards.
NCDEX Head Products Shrikant Subbarayan said that the exchange has received representations from various trade lobbies. "We will request the FMC to revisit the imposition of margins and reduction in position limits as the exchange warehouse has sufficient stocks to ensure that no price manipulation can take place," Subbarayan said.
Various trade bodies have said that while the participation from retail traders, hedgers and arbitrageurs have been affected, it could also impact delivery.
Spices exporter Sibi K Thomas argued that quantitative restrictions cannot be placed on running contracts. "Putting restriction on the near month position limits is not done with the right intention," Thomas said.
When contacted, FMC Member Rajeev Agrawal said the regulator has received representations and is examining the issue.
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Volumes, open interest and prices of pepper futures have gone down on NCDEX. Volume of pepper at 33,167 tonne on May 9 has dropped more than 80% to 6,437 on June 2 while on NMCE, the volumes have gone down from 11,534 tonne on April 19 to 9,340 on May 9 and to 6,748 tonne on June 1."There is a panic among the investors... With such high margins, they are being discouraged to trade in the commodity," NMCE vice-president (business development) Poonam Gupta said.
Some members of the NCDEX product committee on black pepper had in a letter to FMC called for revoking of additional margins and removal of the restrictions on near-month contract. The members had pointed out that while exporters are allowed to take position beyond the prescribed limit (on the back of export orders), they are not allowed to deliver more than 100 tonne.
They said if restrictions are imposed on near-month contracts, it would be easier for a group of speculators to rig the market in the last 29 days of trading of the near-month contract as they would almost be able to conclude the deliveries.
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"Exchange was a platform for genuine exporters and arbitrageurs who have now been driven out... Now, there are only speculators," said Export house Krika Spice International director Viral Bhammer.Too busy to trade in stocks? Invest in Mutual Funds with ET Money!
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