Sebi sets daily price limits for non-agri commodities to curb price manipulation

Once the trade hits the prescribed initial slab of 4 per cent in the case of steel, DPL will be further relaxed by 2 per cent after a cooling off period of 15 minutes.

By: ENS Economic Bureau | Mumbai | Published:September 8, 2016 2:57 am

In a bid to ensure fair price discovery and curb price manipulation on exchanges, the Securities and Exchange

Board of India (Sebi) has fixed daily price limits for non-agricultural commodities. It has set norms for margin money collection and also issued norms for Due Date Rate (DDR) fixation for regional commodity exchanges.

Sebi said non-agricultural commodities will have an aggregate daily price limit (DPL) of up to 9 per cent on both the upper and lower sides and any price movement on either side beyond the set limits won’t be permitted. The aggregate limit is up to 6 per cent for steel and 9 per cent for gold and other non-agri commodities.

Once the trade hits the prescribed initial slab of 4 per cent in the case of steel, DPL will be further relaxed by 2 per cent after a cooling off period of 15 minutes. During cooling off periods, trading would continue to be permitted within the previous slab of DPL. There would not be further relaxation of DPL during that day.

Regarding gold and other non-agri commodities, Sebi said once the trade hits the prescribed initial slab (3 per cent), DPL will be further eased by 3 per cent without any cooling off period in the trading. “In case first enhanced slab is also breached, then after a cooling off period of 15 minutes, the DPL shall be further relaxed by second enhanced slab (3 per cent),” Sebi said in a circular.

During cooling off periods, trading shall continue to be permitted within the previous slab of DPL. “In case price movement in referencable international market is more than the aggregate DPL, the same may be further relaxed in steps of 3 per cent by exchanges. Exchanges should immediately inform Integrated Surveillance Department of Sebi about any such relaxation of DPLs beyond Aggregate DPL, along with all the relevant details and justification,” it added.

For fixing DPL slabs, previous day’s closing price of the contract would be taken as base price. However, for first trading day of each contract, bourses would determine base price based on volume weighted average (VWAP) price of the first half an hour, subject to minimum of 10 trades. “If the sufficient number of trades are not executed during the first half an hour, then VWAP of first one hour trade subject to minimum of 10 trades. If sufficient number of trades are not executed even during the first hour of the day, then VWAP of the first 10 trades during the day,” it said.

For any commodity derivatives, bourses at their discretion can prescribe DPL narrower than the slabs prescribed by Sebi in case they require so based upon their analysis of price movements and their surveillance findings.

Sebi said bourses can levy different transaction charges for different commodities’ contracts and even in the case of contracts of the same commodity to promote competition and bring in greater efficiencies and lower transaction costs to market participants. The exchanges will have to ensure that the “ratio between highest to lowest transaction charges in the turnover slab of any contract is not more than 1.5:1.”

It said concessional transactional charges will be charged only on incremental volume/turnover. Transaction charges are to be charged-on post-facto basis, that is after the trades are executed. Sebi would levy up to 5 per cent penalty — of the shortfall in the required margin money — on members of commodity bourses for failing to collect the required amount from clients.

Members are required to collect the ‘margin money’ from clients, which is later deposited with the exchange. Margin money includes a percentage of the value of commodity that a client is keen to trade.