FMC cracks the whip at traders for non-compliance of delivery norms

Mumbai, Oct 30 | Updated: Oct 31 2006, 05:30am hrs
Forward Markets Commission (FMC) will levy stiff penalties for traders who dont comply with delivery obligations under mandatory delivery contracts, chairman S Sundareshan said on Monday.

If the existing penalties do not deter member from defaulting on taking deliveries, wherever it is mandatory, we will move to extreme penalties, Sundareshan said while addressing a commodity trade seminar the organised by the Confederation of Indian Industry (CII).

Sundareshan asked exchanges along with FMC to jointly regulate members to increase uniformity in trade and reduce any wreckage of the system. Exchanges are the first face of FMC, therefore, in a better position to check trade violation, he said.

Exchanges must be seen as having zero tolerance for misdemeanours of members. The commodity derivatives regulator has carried out a number of measures to tighten the system to prevent trade violation.

It recently increased penalties on violation of position limit, restricted number of terminals used by members for proprietary trade and commenced audit of 60 members.

The commodity futures markets are sensitive and whenever a minor glitch takes place, the entire rationale of commodity trade is questioned, Sundareshan said.

FMC has ordered a probe into the technical malfunction that took place on National Commodity and Derivatives Exchange (NCDEX) on Saturday, the FMC chairman said.

He was speaking on the sidelines of a commodity trading seminar, organised by the Confederation of Indian Industry. We will look into this matter carefully, and it would be investigated, Sundareshan said. FMC chairman hinted that investigation will be completed in a day or two.

The anticipated passing of the Amendment Bill by Parliament during the winter session will strengthen the regulators effectiveness and after that, there is only one way the commodities market can go - wider, broader and up, Sundareshan said.

Emphasising that a small penalty would not act as a sufficient deterrent to defaulters, he said that the commodities market would soon have a system of even more severe penalties in place Addressing the panel discussion on Policy & Regulations Governing Commodity Sector, Paul Joseph, economic advisor, ministry of consumer affairs, touched upon the current legal structure lacunae.

PH Ravikumar, conference chairman & CMD, NCDEX, pointed out that once the commodity markets open up, the phenomenal growth prospects cannot be overemphasised. Elaborating on the efforts made by the exchanges and the regulator to bring in actual users from the corporate segment, he stressed that contrary to the general perception among corporates about coming to the exchange being speculative, not coming to the exchanges would in fact, be speculative for them.

Highlighting the fact that the commodities market was just about to complete 1,000 days Jignesh Shah, MD & CEO, MCX, termed this the year of consolidation after two years of hyper growth in his address.

In his welcome remarks, Dr Ait Ranade, chairman, CII (WR) economic affairs sub-committee & group chief economist, Aditya Birla Management Corporation, underlined the tremendous amount of interest and activity taking place in the commodities market. The deliberations of this conference will lead to policy decisions and helping preparing an action plan for all stakeholders, he said.