Markets regulator Sebi today fixed daily price limits for non-agricultural commodities in order to ensure fair price discovery and curb price manipulation on exchanges.
Non-agricultural commodities have an aggregate daily price limit (DPL) of up to 9 percent on both the upper and lower sides, Sebi said in a circular. Any price movement on either side beyond the set limits are not permitted.
The aggregate limit is up to 6 percent for steel and 9 percent for gold and other non-agri commodities.
The move is part of Sebi’s objective of consolidating and updating norms prescribed by erstwhile FMC (Forward Markets Commission).
The Securities and Exchange Board of India (Sebi) started regulating commodities market since September last year, following the merger of FMC with itself.
With regard to steel, Sebi said that once the trade hits the prescribed initial slab of 4 percent, DPL will be further relaxed by 2 percent after a cooling off period of 15 minutes.
During cooling off periods, trading would continue to be permitted within the previous slab of DPL. There would not be further relaxation of DPL during that day.
Regarding gold and other non-agri commodities, Sebi said once the trade hits the prescribed initial slab (3 percent), DPL will be further eased by 3 percent without any cooling off period in the trading.
“In case first enhanced slab is also breached, then after a cooling off period of 15 minutes, the DPL shall be further relaxed by second enhanced slab (3 percent),” Sebi said.
During cooling off periods, trading shall continue to be permitted within the previous slab of DPL.
“In case price movement in referencable international market is more than the aggregate DPL, the same may be further relaxed in steps of 3 percent by exchanges.
“Exchanges shall immediately inform Integrated Surveillance Department of Sebi about any such relaxation of DPLs beyond Aggregate DPL, along with all the relevant details and justification,” it added.
For fixing DPL slabs, previous day’s closing price of the contract would be taken as base price. However, for first trading day of each contract, bourses would determine base price based on volume weighted average (VWAP) price of the first half an hour, subject to minimum of 10 trades.
“If the sufficient number of trades are not executed during the first half an hour, then VWAP of first one hour trade subject to minimum of 10 trades. If sufficient number of trades are not executed even during the first hour of the day, then VWAP of the first 10 trades during the day,” it said.
For any commodity derivatives, bourses at their discretion can prescribe DPL narrower than the slabs prescribed by Sebi in case they require so based upon their analysis of price movements and their surveillance findings.
To promote competition and bring in greater efficiencies and lower transaction costs to market participants, Sebi said bourses can levy different transaction charges for different commodities’ contracts and even in the case of contracts of the same commodity.
The exchanges will have to ensure that the “ratio between highest to lowest transaction charges in the turnover slab of any contract is not more than 1.5:1.”
The regulator said concessional transactional charges will be charged only on incremental volume/turnover. Transaction charges are to be charged-on post-facto basis, that is after the trades are executed.
Sebi would levy up to 5 per cent penalty -— of the shortfall in the required margin money -— on members of commodity bourses for failing to collect the required amount from clients.
Members are required to collect the ‘margin money’ from clients, which is later deposited with the exchange. Margin money includes a percentage of the value of commodity that a client is keen to trade.
A penalty of 5 percent of the shortfall in margin money would be imposed on members who are repeat defaulters.
One per cent would be levied on each day if members fail to collect the margin money for more than three consecutive days after trading plus two working days (T+2). The same penalty would be imposed from the day one if initial margin is not collected.
Members will have to collect upfront initial margins from their clients. They are given time till ‘T+2’ working days to collect margins (except initial margins) from their clients.
They are required to report to the exchange on T+5 day the actual short collection/non collection of all margins from clients, it said.
The penalties collected should be credited to Investor Protection Fund. The bourses are directed to submit the report on the penalties to Sebi by 10th day of the following month.
Sebi said that incorrect reporting on collection of margin would attract a penalty of 100 percent of amount short collected.
Separately, Sebi has issued norms for Due Date Rate (DDR) fixation for regional commodity exchanges, including formation of DDR committee.
The exchange would have a DDR committee comprising of at least 50 percent members other than the trading ones. Secretary/Executive Director of the bourse would be member of DDR Committee.
Besides, top two members holding highest long and highest short position, respectively, would be invited as observers at the time of fixing of DDR by the committee.
In case, these top two members are not available or not willing to come, then authorised representatives of highest long/short position holder may be called as observers.
The committee would decide the names of at least 15 entities of various trade interests from upcountry markets for forming Spot Price Polling Panel. At least 20 percent of the panelists will be changed every year.
The committee will ensure that the entities forming polling panel should not be related/connected to each other or to the DDR committee members or to directors of the Exchange.
“It means that the entities should not have any cross shareholding, family relationship and commercial relationship among themselves, and with the DDR committee members or with the directors of the exchange,” Sebi said.