MCX and NSE Withdraw Additional Margins on Gold and Silver Futures From February 19

Commodity exchanges rolled back additional margin requirements on gold and silver futures contracts with effect from February 19, signalling a moderation in price volatility in the bullion market, according to official communications.

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The decision was announced separately by Multi-Commodity Exchange of India (MCX) and National Stock Exchange of India, which had imposed the extra margins earlier this month as a risk management measure following sharp price swings in precious metals.

Additional Margins Withdrawn

MCX said the 3% additional margin on all gold futures contracts and the 7% additional margin on all silver futures contracts have been removed with effect from February 19. The exchange asked clearing members to take note of the revision and make necessary adjustments.

In a similar move, NSE Clearing Limited said the additional margins of 3% on gold futures and 7% on silver futures, which were imposed on February 4, stand withdrawn from Thursday. Members were advised to suitably adjust their positions, according to the circular.

Background: Volatility in Bullion Prices

The additional margins had been introduced after sharp and rapid movements in bullion prices earlier this year.

Prices of gold had almost gone up by almost 35% in January, and this has brought about anxieties of increased volatility and leverage in the futures market.

Subsequently, prices cooled by around 15%, according to the report. The moderation in price swings prompted the exchanges to recalibrate margin requirements.

Exchanges typically revise margin norms in response to significant volatility to safeguard market integrity and manage risk exposure.

Impact on Trading and Liquidity

As more margins are withdrawn, the capital requirements of traders in the gold and silver futures will be expected to decrease. Reduced margin demands may have a positive effect on trading and liquidity of domestic bullion derivatives.

The report indicates that the move will help relieve the cost of trading by both hedgers and speculative traders in the futures segment.

Global Context

The decision mirrors similar actions by global exchanges in response to sharp bullion price movements. Late last month, CME Group raised margins on Comex gold and silver futures following one of the steepest declines in precious metal prices in decades, Reuters reported.

Exchanges globally adjust margin requirements depending on prevailing volatility conditions in underlying assets to manage systemic risk.

MCX and NSE have withdrawn the 3% and 7% additional margins on gold and silver futures from February 19 after bullion price volatility eased, according to exchange circulars.