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FMC not to hike penalty, mulls other alternatives

FMC not to hike penalty, mulls other alternatives
PTI
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First Published: Fri, Aug 29 2008. 03 11 PM IST
Updated: Fri, Aug 29 2008. 03 11 PM IST
New Delhi: Commodity market regulator Forward Markets Commission (FMC) has rejected traders and exporters demand to hike the delivery default penalty. The commission is working on other alternatives to tighten the system.
“Imposing hefty penalty is not the only solution. Now we cannot raise it as it was recently slashed to 2.5% from 8% to converge spot and futures prices,” said B.C Khatua, FMC Chairman.
The Agricultural Produce Marketing Committee (APMC) of Unjha, Gujarat, has urged FMC that it should either hike penalty up to 25% on sellers or ensure 100% delivery of the commodity.
Jeera exporters have also complained of the delivery defaults as sellers can exit the market by paying only 2.5% of the traded contract amount as penalty.
Khatua said, “Apart from the penalty provision, we are working on other alternatives to penalise defaulters.”
One of the options, which FMC is working on currently, is that the exchange should buy and ensure the delivery of commodity to the opposite party and recover the differences in the futures and spot prices from the defaulter.
Since delivery of a number of farm commodities in the futures market have been made compulsory, the regulator has received complaints from traders and exporters that low penalty provision is encouraging more defaults.
Khatua pointed out that defaults are not very large in many cases, still they were tightening the system to ensure healthy trading practises.
On the other hand, the leading agri commodity bourse National Commodity & Derivatives Exchange Ltd (NCDEX) denied any delivery defaults.
“We do not have any cases of defaults as all contracts are settled as per the contract terms stipulated in all contracts,” NCDEX Chief Business Officer, Unopam Kaushik said.
He termed the allegation as baseless when pointed out that jeera contracts on NCDEX have maximum delivery defaults as alleged by the traders and exporters.
Kaushik added: “In futures trading, the exchange is a price discovery and risk hedging platform and not a delivery platform for compulsory delivery contracts”.
He said that all the liquid contracts of NCDEX are running successfully with the present penalty structure.
After the penalty was reduced in October last year, jeera delivery on NCDEX has dipped as low as 30 tons in May this year from a level of 750 tons in November 2007.
In July, 234 tons of jeera were delivered through the exchange, which has seen a significant slump in the delivery volume in the last one year, according to NCDEX data.
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First Published: Fri, Aug 29 2008. 03 11 PM IST
More Topics: NCDEX | FMC | APMC | Penalty | Traders |