Uniform transaction charges across exchanges mooted

anthony (Finance) (7918 Points)

22 June 2011  

The Forward Markets Commission (FMC) proposes to come out with uniform transaction charges across exchanges to standardise norms. In 2005, FMC had directed exchanges to impose uniform transaction charges, later modified to maintaining a minimum of Rs 1 and maximum of Rs 4 for business of Rs 1,00,000.Official sources explained that under the proposed regime, while exchanges are free to impose charges on the higher side, depending on their costs, basic or minimum charges and slab structure for each charge category would be prescribed by the commission. This is to ease retail entry into forward trading of commodities on the exchanges by small investors, who are complaining of high transaction charges. Currently, within this band, the exchanges are arbitrarily charging and the minimum transaction fee is always accompanied by top-up charges according to the feedback received from the market, said sources.They explained that there would be one minimum charge, uniform across exchanges. Thereafter, the exchanges could increase the charges, depending on rising volumes or number of trades but within a uniform slab structure to be prescribed by the commission.. This increase will be linked as a spread over a common parameter. Currently every exchange maintains a slab structure for charges, which are not uniform.


Similarly, to curb cornering of trades in a particular commodity, FMC has asked all exchanges to prescribe ‘maximum order size’ in the contract. Official sources explained that exchanges now only prescribe the minimum lot be traded in a particular commodity. Sources said no individual entity will be allowed to exceed its trading positions over and above the maximum order size in that particular commodity. Exchanges have already started prescribing maximum order size for Brent crude, gold and silver. Maximum order size is a limit imposed on an order to be placed by a single entity. Sources said the directive is aimed at high-value commodities like energy, base and precious metals, as well as commodities such as food items which have a direct impact on market prices.


In high-value commodities, it has been observed that a few traders with linkages to international markets corner positions and manipulate prices in non-agri commodities, which are mostly linked with overseas benchmarks. Ultimately, these manipulations affect domestic prices as well. Second, exchanges are coming out more and more with mini contracts. By imposing a maximum order size, it will be easy to observe the real interest in the mini-contract of the same commodity and its original contract. Though trading volumes are very high, traders may be few. Therefore, with a cap on maximum size of the overall order to be placed for a commodity, one can witness in reality how many entities are actually trading on those counters.