While commodity bourses will not apply initial, additional and special margins on hedgers or sellers who give delivery, the Exchanges would continue to collect MTM margins
Commodities market regulator Forwards Markets Commission (FMC) has exempted hedgers from paying risk margin in agricultural commodities from 1st February in order to help boost participation in the commodity futures market.
In a directive, FMC has asked MCX, NCDEX, NMCE, ICEX, UCX and ACE not to apply initial, additional and special margins on hedgers or sellers who give delivery on bourses.
Market participants, including hedgers, are required to deposit margin, a type of collateral, with the exchanges to lower the risk exposure. It is collected in the form of initial, additional and special margins depending on the risk.
Hedgers are generally commercial producers and consumers of the traded commodities. They participate in the futures market to manage their spot market price risk.
However, the exchanges have been asked to continue with the collection of mark-to-market margins from such market participants. MTM margin is collected to offset losses (if any) that have already been incurred on the positions held by a trader.
This decision has been taken following a recommendation by the FMC’s newly constituted Risk Management Group (RMG).
The regulator said RMG has recommended that if a hedger has made early payment of commodity, then he may be exempted from paying the risk margins.
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