KOCHI: Finally there is some relief for the defaulters in Futures trade. The markets regulator, Forward Markets Commission (FMC), has cut the penalty levied on delivery defaults by traders to 2.5 per cent with immediate effect from the earlier 8 per cent.
According to an FMC press note, the total amount of penalty to be imposed will be equivalent to 2.5 per cent plus the difference between the final settlement price (FSP) and the spot price prevailing on the last day of the pay-in/pay-out of the expired contract, if the said spot price is higher than the FSP. Otherwise this component will be zero.
From the penalty levied, 2 per cent would be deposited with the Investor Protection Fund of the exchange and the remaining 0.5 per cent would go to the opposite party.
If the spot price on the last day of pay-in/pay-out of the expired contract is higher than the FSP, then the difference between the FSP and the spot price prevailing on the said day shall also go to the opposite party.
FMC said the traders were demanding the penalty to be brought down to 2.5 per cent, citing lower convergence as the main reason.
Normally, when the settlement day comes near, the Futures prices, which are generally higher than the spot prices, start converging with the spot prices.
But in commodity Futures, this was not happening and traders had charged the high penalty for not allowing the Futures to converge with the spot prices.
Cases have also been reported of traders trying to jack up prices at the time of settlement. By reducing the penalty, the FMC hopes to help the convergence of Futures and spot prices.
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