Ivory Coast's cocoa marketing board has given exporters six days to supply documentation for export contracts, including proof of a counterparty, or they will be cancelled and resold, the Coffee and Cocoa Council (CCC) wrote in a memorandum seen on Friday.
The measure, aimed at stamping out speculation in the top grower's forward sales system, could lead to the resale of 200,000 to 250,000 tonnes worth of cocoa contracts, five exporters and a finance ministry official told Reuters.
Exporters said the CCC had taken the step after realising that small, domestic operators had purchased contracts for the 2016/17 season, which opens in October, at auction without securing a price with off-takers.
World prices have since dropped and, having failed to hedge, those exporters are now facing heavy losses.
"The CCC is talking about cancelling local exporters contracts because they have not been hedged, and therefore remarketing them back to international buyers," one London-based trader said, adding that the news had weighed on prices.
December London cocoa had tumbled 2.7 percent, to 2,202 pounds a tonne by 1230 GMT while December New York cocoa was down 2.6 percent, at $2,810 a tonne.
"Most of the contracts concerned by this were bought from the CCC between November and December 2015 at prices of 2,100 to 2,150 CFA francs ($3.61-$3.69) per kg," said one exporter.
"They didn't finalise their contracts at the time and now the market is at 1,800 CFA francs and they can no longer execute these contracts."
The CCC has sought to favour small, local exporters by granting them certain fiscal advantages and more flexibility under Ivory Coast's electronic auction system.
For example, international exporters are required to provide the terms agreed with a counterparty and a deposit equal to 2.5 percent a contract's value within one week of its purchase. But local exporters pay no deposit and must only submit their documentation before the start of the season.
Larger exporters complained this level of leeway for domestic operators opened the door to abuse.
"It hurts the whole system because there is a lack of transparency," said one international trader.
The CCC memorandum stated that operators who see their contracts cancelled and re-auctioned ahead of the October start of the season will have to pay a penalty of 15 CFA francs per kilogram if the contracts are resold at a loss.
For contracts resold after the season's opening, an adjusted penalty will be applied. Exporters will be banned from participating in the auctions until they have cleared their penalties, the memo said.
($1 = 582.0900 CFA francs)