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Commexes to use spot prices for futures trade
June, 23rd 2008

Trading on agri-commodity futures in India is set to become more transparent as the commodity exchanges in India are planning to use prices on spot exchange as settlement price for futures in farm goods. MCX and NCDEX, the two major commodity trading platforms in India, are going ahead with launching of their spot exchanges for agricultural commodities.

"From December onwards MCX will start using the settlement prices on National Spot Exchange (NSEL) as a benchmark for settlement of futures contract," NSEL CEO and MD Anjani Sinha told ET . Slowly, settlement of all futures contracts on MCX will be done using its spot exchange price as the benchmark.

Within a fortnight of spot exchange launch, more than 500 traders and corporates from across the country have showed their interest in its spot exchange membership and 155 completed application forms is already submitted for enrolment as its trading-cum-clearing member within a fortnight of spot exchange launch.

Exchange officials said that most of the brokers active in futures exchanges are applying for membership in National Spot Exchange, as it provides a hassle free platform for cash future arbitrage in agri-commodities. Trading on the NSEL will commence from August onwards. Traders and brokers feel that price rigging and cartelisation in commodity futures will not be possible once a spot exchange benchmark is put in place.

Karvy Comtrades Ashok Mittal said, "Using spot exchange prices as benchmark for settlement of farm futures will deepen this futures segment as more genuine hedgers will enter the markets." Traders said once the spot exchange is in place, farmers would be able to benefit from futures market by selling in localised spot contracts, which will have strong linkage to the futures contracts.

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