Small commodity bourses in peril

With three new national commodity exchanges starting work in the last few years, namely National Commodity Exchange, Multi Commodity Exchange and the National Multi Commodity Exchange, the volume of trading at the regional commodity exchanges have reduced substantially and the regional commodity exchanges may perish soon if not revived by the regulatory authority Forward Markets Commission (FMC).

"The regional commodity exchanges across the country will have to upgrade themselves. These need to come on a common platform and create an identity for themselves. Even FMC has asked the regional exchanges to come on a common platform for their survival. The traditional and open cry-exchanges continue to operate and function as before and in many cases are dominated by vested interests who have scant regard for transparency and fair practices. If the same continues, the regional commodities exchange will perish soon." D S Kolamkar, director, FMC, said.

There are over 22 regional commodities exchanges, and in the era of liberalisation and globalisation, these are facing threat from the national commodities exchange. In the future, regulatory restrictions may be imposed on the regional commodities exchanges.

The regional commodity exchanges lack common volume infrastructure and a delivery rule for each of the commodity. These do not have their own cash reserves such as the BSE having reserves of over Rs 100 crore.

"In a recent case involving castorseed trading, one of the leading regional commodity exchange openly defied the orders of the market regulator, FMC, and favoured a machinator, who made a clean profit of over Rs 32 lakh at the cost of the compliants who were said to have been cheated. The issue, it is understood, revolved round the machinator's refusal to take 'delivery' of the contracted commodity, causing a major upheaval in the castorseed prices," said Kailash Gupta, managing director, National Multi-commodity Exchange of India Ltd.

"This incident brings to the fore the importance of the delivery-backed system, as introduced and practiced by the national commodities exchanges, where delivery is executed through a sound and reliable warehouse receipt system, which leads to guaranteed clearing and settlement," Gupta added.

The online commodity futures trading in the country has attracted not only traditional trading community but also has caught the imagination of hedgers, speculators, investors, stock brokers, banks, financial institutions, farmers and even small investors among others.

The national commodities exchanges by setting a number of standards are the major cause of declining volumes at the traditional commodities exchanges.

The three commodity exchanges in Gujarat, Ahmedabad, Surendranagar and Rajkot Commodity Exchange, in association with the Mumbai, Indore and Kochi Commodity Exchange are in talks to unite the all the 22 regional exchanges.