The Hindu Business Line : NCDEX, MCX plan long-term crude futures

THE National Commodity and Derivatives Exchange (NCDEX) and Multi Commodity Exchange (MCX) are planning to approach the Forward Market Commission (FMC) to launch long-term contracts for attracting serious risk hedgers in the market.

The FMC currently allows only quarterly contracts in crude oil.

The development coincides with recent stabilisation in crude prices at a lower level leading to a drop in daily turnover in the future markets on both the exchanges.

The drop is reportedly attributed to the speculators or day-traders, generally attracted during the volatile price situations.

Sources in both the exchanges confirmed that they were considering launch of bi-annual contracts in the near future to attract serious players.

While NCDEX, the latest entrant in crude futures, is planning to move the FMC with its plea to launch bi-annual contracts, MCX feels that the market demand for such derivatives is yet to attain the requisite critical mass and the exchange may have to wait for some time before introducing such contracts.

"The long-term stability of crude futures will depend on participation of users of crude oil and other associated industries which have a strong price co-relation with crude oil for hedging the risks. Compared to the day-traders who are only interested in profit booking taking advantage of price volatility, the risk-hedgers take a greater interest in futures market in all seasons," said a senior NCDEX official.

MCX and NCDEX offer future contracts on West Texas Intermediate (WTI) and International Petroleum Exchange (IPE) linked Brent crude varieties respectively.

Turnover: MCX registered a turnover of close to Rs 750 crore on trading volume of approximately 28 lakh barrels with an open interest position of over 10 lakh barrels on Wednesday.

Though average monthly turnovers are not readily available, a quick comparison with early October (when prices were volatile) trading volume indicates that the daily turnover has lately come down substantially.

NCDEX, which had just settled its first contract, is now recording an average daily turnover of Rs 100 crore down from a peak turnover of Rs 250 crore.

The exchange, however, records reasonably good "open interest position" of 2.25 lakh barrels.

The "open interest position" is generally considered to be an indicator of long-term participation in a futures market.

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