NCDEX tries to strengthen process of fixing final settlement price of futures contracts

MUMBAI: The country’s largest farm futures exchange NCDEX is working to strengthen the process of arriving at the final settlement price (FSP) of futures contracts — much to the comfort of traders bullish or bearish on a particular contract complaining to the exchange that the FSP declared was off their anticipation.

Currently, FSP is determined by a polling mechanism wherein NCDEX-empanelled agencies collect price quotes from mandis (physical marketplaces) from traders, who might also have a position on the futures market. Through a process of bootstrapping, prices at sharp variance (outliers) are eliminated and an average is arrived at.

The problem is traders, from whom quotes are collected, misquoting prices as they might run positions on the exchange or for some other vested interest. In such a case, the FSP might be far from what’s anticipated by those participating in trade.