SEBI Order on Forward Trading Contracts

IAS Prelims 2023

The market regulator SEBI has directed NCDEX to discontinue forward trading contracts.

In a notification issued, SEBI said market participants will not be allowed to enter into fresh forward contracts till further orders.

According to notification, the existing forward contracts shall be allowed to be settled according to the terms of the contracts.

Unlike futures contract, commodity specification and quantity for delivery is decided mutually by both seller and buyer in forward contract while the exchange stands as guarantor for execution of the contract.

Last month, NCDEX facilitated delivery of 9,660 tonnes of commodities on the forward platform.

The forward segment registered volume of 40,970 tonnes worth ₹179 crore since its launch last February. It facilitates trade in 26 commodities on the forward platform.

Last May, NCDEX included ‘Gold Now’ for delivery of recycled gold on the forward platform.

Reacting to the development, NCDEX said it would abide with the SEBI directives.
Position limit cut

In a bid to reduce volatility and curb speculative trade on futures platform, SEBI has reduced the daily price limit of barley, chilli, jeera and turmeric to four per cent with initial and enhanced limit of 2 per cent each from February. The initial price limit on other agriculture commodities will be three per cent and then enhanced by one per cent if the initial slab is hit during the day.

Further, trading position limits in near-month agriculture contract have been halved to 25 per cent.

The revised near-month position limit for both clients and members will be applicable for all agriculture contracts expiring from March.

Besides NCDEX, the trading volume in MCX will also be affected as it has good liquidity in menthe, cotton and crude palm oil contracts.

The firm price signal sent by the futures market and rising pulses and sugar prices have led to many curbs, including stock limit on traders.