Mumbai: India, the world’s second biggest producer of sugar and wheat, will narrow the range farm commodities futures are allowed to move by each day while increasing the maximum positions that traders may hold.
The Forward Markets Commission will cut the daily limit by which a commodity can rise or fall by 2 percentage points to 4% to reduce volatility, chairperson B.C. Khatua said on Wednesday.
Greater participation: The enhanced holding limits may help India’s exchanges boost trade in farm commodities after a ban on wheat and lentil trading and curbs on the size of investors’ bets stalled growth. (Photo: Ramesh Pathania/Mint)
The new limit will be effective from 18 February, the National Commodity Exchange said in a statement.
The regulator also raised the absolute number of contracts that exchange members and their clients may hold in farm commodities, Khatua added. The figures vary by commodity. For sugar, it will be doubled to 60,000 contracts.
The commission, at the same time, kept the limit on a single member’s share of total open interest in a commodity at 15%, he said.
“Higher position limits are certain to boost volume of trade, and one may see more companies and individuals trading on the exchanges,” Naveen Mathur, head of research at Angel Commodities Broking Pvt. Ltd, said. “Limits on price fluctuations will ensure there’s less scope for manipulation.”
The enlarged holding limits may help India’s 23 exchanges boost trade in farm commodities after a ban on wheat and lentil trading and curbs on the size of investors’ bets stalled growth. Commodities worth Rs31.6 trillion were traded between April and January, little changed from a year ago.
“There will be greater participation from hedgers with the higher open interest limits,” Khatua said, referring to investors who use futures markets to protect themselves against swings in prices. The “lower price band is sure to keep over-speculative elements out of the market and ensure orderly trading,” he said.
Indian exchanges are closed to overseas funds, although the country is the world’s largest consumer of gold and the second biggest producer of rice.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date. Open interest refers to bets that have not been closed. Bloomberg