FMC rejects near-zero transactions fee at NCDEX; eases open position limits

The Forward Markets Commission has rejected a proposal by National Commodities & Derivative Exchange (NCDEX) to reduce the transaction fee on the basis of time zones and the commodities being traded even as the commodity market regulator eased restrictions on the quantity traded on commodity bourses by liberalising near-term open position limits.

The position limits for 'near month' are now applicable for minimum seven days before the expiry of the contract, while earlier it was fixed for 30 days. FMC also introduced an early delivery mechanism to boost agriculture commodity trade.

The earlier one-moth open position is said to have limited trades option to trade in higher volumes, resulting in lower turnover on the exchanges, it said.

FMC quashed NCDEX's proposal of lowering the transaction charges from Rs3 a lakh to 5 paisa a lakh for transaction in the evening session and said no exchange could fix the distinctive transaction charges for different time zone and different commodities.

In January 2009, the NCDEX had reduced the transaction fee from Rs3 per lakh to Rs0.05 per lakh in evening (5:00 pm to 11 pm) session in the wake of falling customer base. This contravened FMC guidelines.

FMC regulations don't allow two patterns of charges on two different trade zones and two different commodities.

The NCDEX move followed a 35 per cent fall in the turnover of agricultural commodities in the three national exchanges and 19 regional exchanges to Rs5,85,433 crore in the 2008-09 (till March 15), compared with Rs8,94,563 crore in the year-ago period.

NCDEX challenged the FMC order in the Bombay High Court, which  also dismissed the plea and asked FMC to consider the proposal within two weeks. However, after reconsidering the proposal, FMC once again rejected the proposal and ordered to restore the transaction fee as per framed guidelines.

''This is to clarify that in the order of the commission dated the 19 February 2009, certain references have been made to the instances of financial mis-management and the consequential depletion of the reserves of the exchange. These instances were referred to by the commission to underline the fact that the exchange, keeping in view its present vulnerable financial condition, is not in a position at this stage to take the risk it wants to take by resorting to drastic reduction in the transaction charges in the evening hours and such an action may lead to serious financial troubles in future and may even jeopardise the monies of the members lying with the exchange in fiduciary capacity,'' it said.

This reference was, thus, in the limited context of the exchange's present financial risk-taking potential and not its risk management system which is fine, it added.

The commission had to balance the needs for competitive pricing with potential risk to risk-free trading, the release said.

''With the circular of the exchange dated 28 January 2009 no more operative, there is no potential risk to the market participants the order speaks about. The commission would like to assure all the market participants that they may continue to participate on the NCDEX trading platform without fear of any regulatory failure or risk of breach of contract,'' it added.