To an extent that will increase the holdings of hedgers in the futures markets, the Commodities regulator Forward Markets Commission (FMC) has decided to implement regulatory mechanism differential margin for hedgers.
Hedgers are different traders and profiteering the exchange platform and ease granted is for agricultural commodities, where traders and manufacturers who have an outstanding treatment in which delivery will be made available at some future date, which may cover their price risk in the current price square ad in the hedge exchange platform when their dealings in physical marketplace is closed.
For example an importers expecting delivery after a month can lock the selling price which they receive after a month on the futures market while making import contract.
The Commission has been looking at several steps to encourage the participation of hedgers in the futures markets for commodities. It has now been granted waiver of the initial / additional / special for hedgers to reduce the cost of coverage margins.
This has been discussed and deliberated on by the newly formed Risk Management Group of FMC (RMG) at their first meeting held on November 18, 2013.
In accordance with the circular issued by the FMC, the RMG had recommended that if a hedger has made payment earlier commodity, then he can be exempt from payment of risk margins.
The Commission stated in its instructions to the national exchanges, “which could exempt market players who have deposited as certified goods against all relevant futures contracts sold and intended for delivery at the Exchange accredited warehouse from the down payment, additional and special margins. These participants will continue to be exempt from distribution margins. Yet, the exchange shall continue to collect mark to market margins of this type of market players. “The new facility will be effective from 1 February, 2014.
Reported News Source: Business Standard