NCDEX implements new hedge policy

Mumbai, Aug 4 | Updated: Aug 5 2005, 05:56am hrs
The commodities market regulator, Forward Markets Commission (FMC) has laid down guidelines to allow for higher limits on open positions for hedging compared to speculative limits on the commodity exchanges. The changes have been implemented from Wednesday.

FMC had announced in its co-ordination committee meting held on July 5, that it would come out with guidelines allowing hedgers to have higher open positions.

Following FMC guidelines, the National Commodity and Derivatives Exchange (NCDEX) announced its new hedge policy and also stated that its members can now hedge their proprietary accounts.

The policy is for all members trading in their proprietary account with genuine hedging requirement, the NCDEX said in a release.

It is applicable to members who could be importers or exporters or those having stocks of physical goods of commodities, it said.

Highlights
Hedge limits to be sanctioned either for long or short positions, not both
Liquidating of the hedge position to be allowed
Churning of such a position during a hedge period not to be allowed
Permission for higher client-level open interest limits for players hedging the price risk
Limit to be applicable to stocks of commodities also pledged with the government, scheduled or co-oper ative banks, and kept with government warehouses
Additional open position limit granted as hedge limit shall not exceed a quantity equivalent to the client-level open interest position limit prescribed for that commodity
Under the policy, the exchange will permit higher client-level open interest (OI) limits (referred to as Hedge Limits) for hedging the price risk of current cash and expected future commodity requirement subject to satisfying certain conditions and producing documents as specified by the exchange.

The limit will be applicable to stocks of commodities owned by the members or pledged with the government, scheduled or co-operative banks and those stocks kept at government warehouses.

The limit for a commodity shall be determined on the basis of the hedging requirement and other factors, the NCDEX release said. The additional open position limit granted as hedge limit shall not exceed a quantity equivalent to the client-level open interest position limit prescribed for that commodity, it said.

The release says a member will be sanctioned hedge limits either for long or short positions, not both.

Although a member can liquidate the hedge position, churning of such a position during a hedge period will not be allowed.

A hedger registered with the exchange will be allotted a unique Participant Code.

The code shall be used by the hedger while trading on the exchange in those commodities in which he has been sanctioned limits.

This code should not be used by the hedger while trading in any other commodity where he has no limits approved to him.

The approved limit will be valid from the date of sanction for a period specified in the sanction letter. Unless renewed, the limit shall stand cancelled automatically upon expiry of such period without any notice. The hedger shall apply for any renewal of limits at least a month before the expiry of approval along with relevant documents as prescribed by the exchange regularly.