FMC to get tough on non-delivery
The FMC has said that exchanges will “substantially” increase the penalty in absence of deliveries on maturity of futures contracts.
By TNN |
MUMBAI: The Forward Markets Commission, the regulator for commodity exchanges, has said that exchanges will ���substantially��� increase the penalty in absence of deliveries on maturity of futures contracts. The penalty will be raised ���substantially��� from the present level of 0.5% of the outstanding position to move towards a mandatory delivery system.
Addressing the media after a work-shop on ���Delivery in Futures Markets���, S Sundareshan, chairman, FMC, said the commission had decided two months ago that it will move towards mandatory delivery on outstanding positions. The regulator is yet to decide on the extent to which the rate of penalty would vary between commodities. ���We have decided to stick by the decision that we move towards mandated delivery for pending positions.
This will be implemented through a strict penalty clause. Orders will soon be out for stricter penalties for non-delivery,��� said the regulator. However, it���s unclear as to how mandatory delivery and seller���s option will co-exist. The FMC, which will get comprehensive powers after a bill to amend the Forward Contract Regulation Act (1952) is passed in Parliament, has decided to expand regulatory activity in view of sharp growth in the market.
Soon the FMC will ask members of the commodity exchange, who are the equivalent of brokers in equity markets, to submit financial details about themselves, their clients and their trading activities. ���Since registration in the Sebi pattern may take time, we have decided to have an association of members where by utilising Section 4 and Section 8 of the FCRA Act, we will seek full information regarding affairs of members,��� Mr Sundareshan added. Additionally, the FMC has decided to have a scheme for inspecting accounts of select members, which may be conducted by the FMC officials or outsourced.
In a move that will benefit those who trade in real goods and use commodity futures only to hedge against a price risk in these goods, the FMC has decided to allow them higher exposure limits. In response to a discussion on exclusive rights to deal in a particular commodity, the FMC was of the view that regular contracts should be open to all exchanges. However, where someone has done highly innovative work, the contract should not be immediately replicated.
Addressing the media after a work-shop on ���Delivery in Futures Markets���, S Sundareshan, chairman, FMC, said the commission had decided two months ago that it will move towards mandatory delivery on outstanding positions. The regulator is yet to decide on the extent to which the rate of penalty would vary between commodities. ���We have decided to stick by the decision that we move towards mandated delivery for pending positions.
This will be implemented through a strict penalty clause. Orders will soon be out for stricter penalties for non-delivery,��� said the regulator. However, it���s unclear as to how mandatory delivery and seller���s option will co-exist. The FMC, which will get comprehensive powers after a bill to amend the Forward Contract Regulation Act (1952) is passed in Parliament, has decided to expand regulatory activity in view of sharp growth in the market.
Soon the FMC will ask members of the commodity exchange, who are the equivalent of brokers in equity markets, to submit financial details about themselves, their clients and their trading activities. ���Since registration in the Sebi pattern may take time, we have decided to have an association of members where by utilising Section 4 and Section 8 of the FCRA Act, we will seek full information regarding affairs of members,��� Mr Sundareshan added. Additionally, the FMC has decided to have a scheme for inspecting accounts of select members, which may be conducted by the FMC officials or outsourced.
In a move that will benefit those who trade in real goods and use commodity futures only to hedge against a price risk in these goods, the FMC has decided to allow them higher exposure limits. In response to a discussion on exclusive rights to deal in a particular commodity, the FMC was of the view that regular contracts should be open to all exchanges. However, where someone has done highly innovative work, the contract should not be immediately replicated.
During the workshop, the commodity exchanges and members had raised a number of issues pertaining to delivery. The regulator has acknowledged that there were problems with the process of delivery, and has constituted a committee to look into these issues. This committee will comprise members of the commodity exchanges, including single-commodity exchanges and will have an FMC official as convenor.
Issues included a large number of technical matters connected with warehousing. There was also concern among participants whether dematerialised warehouse receipts will work, considering there is no demat in the market for physical goods. Players were also concerned about who would be responsible for quality, damage and catastrophic loss to goods delivered to a warehouse.
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