Comexes seek time to act on illiquid deals

Responding to the Forward Markets Commission’s (FMC) call to act hard on illiquid contracts, domestic commodity exchanges have asked for 15 days’ time to submit the ‘action-taken report’.

Last week, the FMC had convened a meeting in which Chairman B C Khatua had sought reasons from senior executives of the bourses for the contracts’ liquidity crunch. He had also asked for methods to attract participants to futures trading in such commodities.

FUTURE TENSE

Last week, the FMC had convened a meeting in which Chairman B C Khatua had sought reasons from senior executives of the bourses for the contracts’ liquidity crunch. He had also asked for methods to attract participants to futures trading in such commodities
 

However, exchanges unanimously cited the versatile nature of commodities, variable grain size and seasonal trading practices in the spot market as major factors for volumes not picking up on the platforms 
 

Meanwhile, exchanges have launched many contracts in the recent past, which either became defunct or were turned down after an initial good response

However, exchanges unanimously cited the versatile nature of commodities, variable grain size and seasonal trading practices in the spot market as major factors for volumes not picking up on the platforms. However, they assured the FMC to take steps to bring illiquid contracts in line with the main commodities traded.

“Participants, mainly from the national commodity exchanges, and FMC officials discussed the re-orientation of illiquid commodities. The FMC Chairman suggested modification in contract specifications, if needed, to attract participation,” said a participant.

Exchanges have also sought six months’ time for visible results in these contracts, he added.

Early this year, the Commission had proposed to come out with a regulation for stringent checking of norms and the commodity’s viability at the time of approval. The regulation, according to sources, is in the preliminary stage.

Meanwhile, exchanges have launched many contracts in the recent past, which either became defunct or were turned down after an initial good response. For example, the recently-launched platinum, barley, gur and sugar contracts remain untraded on the Multi Commodity Exchange (MCX) while mentha oil, polyvinyl chloride (PVC), polypropylene, aluminium, brent crude oil remained tasteless for traders on the National Commodity & Derivatives Exchange (NCDEX). Contracts such as isabgul, copper, aluminium, nickel are untraded on the National Multi Commodity Exchange (NMCE).

“The commodity futures market opened after a 60-year ban and is hardly four years old. Therefore, comexes require more time to work on the newly-launched contracts to attract trade. We are surely going to enhance the testing time for comexes and so, have no plan to delist illiquid products,” FMC Chairman B C Khatua had said.

There are two ways to look at agri commodities in India — observe success and then launch contracts or do it the other way. But the success of contracts also depends on other factors like contract design, supply, location of major farming areas.