FMC not to hike penalty; mulls other options

New Delhi, Aug 29 | Updated: Aug 30 2008, 08:52am hrs
Commodity market regulator Forward Markets Commission (FMC) has rejected demands by traders and exporters to hike the delivery default penalty, stating that it was 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, FMC chairman BC Khatua told PTI. The Agricultural Produce Marketing Committee (APMC) of Unjha, Gujarat, has urged the FMC that it should either hike the penalty up to 25% on sellers or ensure 100% delivery of the commodity.

Jeera exporters have also complained of delivery defaults as sellers can exit the market by paying only 2.5% f 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 the FMC is working on currently, is that the exchange should buy and ensure the delivery of commodity to the opposite party and recover differences in the futures and spot prices from the defaulter. Since the 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 was encouraging more defaults. Khatua pointed out that the defaults were not very large in many cases, but we are tightening the system to ensure healthy trading practices.

On the other hand, leading agri-commodity bourse 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 the NCDEX have maximum delivery defaults as alleged by 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.