India: Commodity market regulator FMC imposes cash margin on barley contracts to curb volatility

Commodity market regulator FMC has decided to impose a special cash margin of 20% on all pending contracts of barley to curb its volatility in the futures trade, The Financial Express reported on April, 27.

Barley, which is traded in large volumes on the NCDEX, is primarily used as a major animal fodder. The trade also includes malting-grade barley.

In an order, Forward Markets Commission (FMC) said: “In view of excessive volatility in the prices of barley, special cash margins at 20% on the long side are being imposed with effect from the beginning of trading day ie April 27, 2012, on all contracts”. The special margin would also be applicable on contracts in barley that are yet to be launched on the exchanges, it said.

Margin is a deposit that is required to be given by traders before entering into a pact to buy or sell the commodity at future date.

During the month, prices of barley have risen by nearly 12% mainly due to speculative buying in view of strong demand from beer making industries in spot markets.

The futures prices of barley were quoted at R1,520 per quintal early this month. The May contract for barley was trading at R1,674.5 per quintal on April, 26 as against April, 25’s close of R1,708.5 per quintal.

The June contract stood at R1,710 per quintal against last close of R1,744 per quintal on the NCDEX. Spot prices of barley, however, were ruling at about R1,587 per quintal on April, 26.

The regulator also asked the exchanges not to accept fixed deposits and other collaterals against cash margins for barley contracts.

FMC has already imposed higher margins on other farm commodities such as soyabean, rape/mustard seed, chana and refined soya oil contracts to curb volatility in prices.

27 April, 2012