Gold futures on BSE: Cross-delivery centres may be a challenge, say brokers

Even as the STOCK MARKET has announced its preparedness for the commodity futures play, its brokers have some concerns, especially around delivery of bullion at the centre of choice.

This means, the exchange might offer delivery of the commodity at a centre different from the one chosen by a trader in case the underlying is not available at the centre of choice. Transportation, premiums, discount, value at risk and other costs involved in the changed delivery centre are factored in the actual price payable for sellers. But BSE traders want the exchange to offer delivery of bullion at the centre of their choice.

Existing commodity exchanges take a leeway in the delivery of commodities after the expiry of a running contract. They have a number of identified delivery centres across all deliverable commodities.

The issue facing the BSE is not gold-specific; it applies to all commodities across exchanges, according to brokers. Since BSE is launching commodity business with precious metals futures, there is a scope to look at the issue afresh.

“We used to trade in bullion on commodity exchanges earlier. The exchange offered the delivery of gold to us from a remote centre. Since the transportation of gold from that centre was difficult, we accepted the delivery, assuming this would not be repeated. But, gold delivery was again offered from the same centre. After that, we stopped trading on that commodity exchange. Now, BSE needs to address the delivery problems that traders have faced on commodity exchanges,” says A P Shukla, president, Joindre Capital Services Ltd, a member of all recognised equity and commodity exchanges in India.