High volatility brings mentha oil futures under FMC lens

Mumbai, Jan 4 | Updated: Jan 5 2006, 05:48am hrs
Commodity futures market regulator, the Forward Markets Commission (FMC) has sharply tightened margining and delivery norms for mentha oil futures contract after reports of high volatility in the futures trading market and a sharp difference in the spot and futures prices.

To curb volatility in mentha oil futures, FMC imposed on Wednesday a penalty of 5% on traders who fail to take or tender delivery of the commodity by the end of January and subsequent contracts. Also, open position will not be permitted to be increased during the last five days prior to the expiry of the contracts.

A release from the FMC stated, "These directions shall be applicable to all the running mentha oil contracts including the January 2006 delivery." FMC has directed both the exchanges running the contract to implement the measures with immediate effect. Mentha oil is traded on both, Mumbai-based Multi Commodity Exchange (MCX) and National Commodity and Derivative Exchange .

Observing that a significant degree of volatility has been found in mentha oil spot and futures prices, the FMC had earlier imposed additional margins on mentha oil contracts on the MCX. Effective December 31, an additional margin of 4% was levied on members having open positions, both on the buy and the sell sides, along with the daily initial margin of 8% and special margin. Also, additional margin of 5% is being levied on members having net long open position in all the contracts of mentha oil. This will be calculated at the end of the trading day on the net open long position of the members (at client level), and will be blocked from the deposits available with the Exchange. Such reduced deposits will be available to the members for trading for the next day. This additional margin will be in addition to the additional margin margin of 4%. FMC had been closely interacting with the exchange, particularly towards the close of the contract.

The settlement price of the contract, which is the spot price of the commodity on the day of settlement was Rs 709.20 against the last traded futures price of Rs 717. Additionally, the FMC has asked national exchanges to ensure that brokers, sub-brokers, and other entities that have been suspended or debarred by the Sebi, BSE and NSE from trading in stock exchanges do not participate in the commodity derivative markets.