 "Commodities market is out of NSEL shadow: Ramesh Abhishek")
Ramesh Abhishek has spent about three years as chairman of the Forward Markets Commission (FMC) and is currently serving an extended term. A Harvard alumnus and a Bihar-cadre Indian Administrative Service officer, Abhishek has taken several measures to revive confidence in commodities futures. He tells Rajesh Bhayani that delivery-based forward trading will be a game-changing measure. Edited excerpts:
Do you think commodity exchanges have left the National Spot Exchange Limited (NSEL) crisis behind?
Yes. We ring-fenced MCX (Multi Commodity Exchange) soon after the fraud had been detected, to keep it out of the shadow of the crisis in NSEL, promoted by the founder-company of MCX. However, there was an issue of confidence in the exchange business as the NSEL crisis followed the imposition of commodities transaction tax (CTT). Now, volumes have grown and I can say the NSEL crisis' impact is no longer there and only the impact of the CTT remains. Part of the fall in volumes is also explained by the lower commodities prices and the reduced price volatility itself. Even at MCX, average daily volumes have reached Rs 25,00026,000 crore. In the past week, in one day, its total volume was at a 16month high. In other words, due to several initiatives taken by FMC, market participants' confidence has revived.
There have been many. We have permitted evening trade in many agri-commodities, especially those with international dimensions. To improve hedging, margins have been relaxed for those who make early pay-ins, and position limits and circuit limits have been liberalised to allow for large hedgers to hedge their commodities' risk. These will also increase market depth. Several measures have also been taken to improve the ease of doing business for members and clients, including freedom for exchanges to modify most contract specifications.
These measures are resulting in many large participants increasing their presence and hedging their positions. We are also considering allowing foreign hedgers on national exchanges to hedge their risks. Corporate governance norms introduced by the Commission have made exchanges free from interference.
The most important of these measures is the introduction of delivery-based forward trading, which will prove a game changer for the commodities market. Forward trading is regularly done on spot markets but since deliveries are at future dates, it perfectly falls under the FMC.
Barring one exchange, most bourses seem hesitant to launch forward trading...
Apart from the one which had already launched such trades, Ahmedabad-based National Multi Commodities Exchange has also proposed to launch it and this is likely to get approval soon.
There have been several complaints of excess speculation in castor, coriander and cumin. How are you addressing that?
We took drastic measures to address the complaints in castor and coriander futures. We advanced the staggered delivery to three weeks and revised the pre-delivery margins in such a way that it increased, gradually reaching 100 per cent on the day of expiry. This has resulted in very healthy physical deliveries on the exchange platform. About 150,000 tonnes of castor seeds and 6,000 tonnes of coriander have already been delivered. Those who might have been trying to manipulate the market have been given a strong message, that FMC will take prompt measures to prevent such behaviour. It is such practices that had given a bad name to this market earlier and we are not going to tolerate this.
In case of jeera (cumin), there have been no complaints so far. However, we are sending our team to producing centres to gauge the situation and to decide if any action needs to be taken.
Through its strong monitoring and surveillance mechanism, the Commission is fully committed to regulating the market and providing a fair and transparent platform with strong risk management and a level-playing field for all the market participants.
Do you think commodity exchanges have left the National Spot Exchange Limited (NSEL) crisis behind?
Yes. We ring-fenced MCX (Multi Commodity Exchange) soon after the fraud had been detected, to keep it out of the shadow of the crisis in NSEL, promoted by the founder-company of MCX. However, there was an issue of confidence in the exchange business as the NSEL crisis followed the imposition of commodities transaction tax (CTT). Now, volumes have grown and I can say the NSEL crisis' impact is no longer there and only the impact of the CTT remains. Part of the fall in volumes is also explained by the lower commodities prices and the reduced price volatility itself. Even at MCX, average daily volumes have reached Rs 25,00026,000 crore. In the past week, in one day, its total volume was at a 16month high. In other words, due to several initiatives taken by FMC, market participants' confidence has revived.
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Which FMC initiatives have helped the most?
There have been many. We have permitted evening trade in many agri-commodities, especially those with international dimensions. To improve hedging, margins have been relaxed for those who make early pay-ins, and position limits and circuit limits have been liberalised to allow for large hedgers to hedge their commodities' risk. These will also increase market depth. Several measures have also been taken to improve the ease of doing business for members and clients, including freedom for exchanges to modify most contract specifications.
These measures are resulting in many large participants increasing their presence and hedging their positions. We are also considering allowing foreign hedgers on national exchanges to hedge their risks. Corporate governance norms introduced by the Commission have made exchanges free from interference.
The most important of these measures is the introduction of delivery-based forward trading, which will prove a game changer for the commodities market. Forward trading is regularly done on spot markets but since deliveries are at future dates, it perfectly falls under the FMC.
Barring one exchange, most bourses seem hesitant to launch forward trading...
Apart from the one which had already launched such trades, Ahmedabad-based National Multi Commodities Exchange has also proposed to launch it and this is likely to get approval soon.
There have been several complaints of excess speculation in castor, coriander and cumin. How are you addressing that?
We took drastic measures to address the complaints in castor and coriander futures. We advanced the staggered delivery to three weeks and revised the pre-delivery margins in such a way that it increased, gradually reaching 100 per cent on the day of expiry. This has resulted in very healthy physical deliveries on the exchange platform. About 150,000 tonnes of castor seeds and 6,000 tonnes of coriander have already been delivered. Those who might have been trying to manipulate the market have been given a strong message, that FMC will take prompt measures to prevent such behaviour. It is such practices that had given a bad name to this market earlier and we are not going to tolerate this.
In case of jeera (cumin), there have been no complaints so far. However, we are sending our team to producing centres to gauge the situation and to decide if any action needs to be taken.
Through its strong monitoring and surveillance mechanism, the Commission is fully committed to regulating the market and providing a fair and transparent platform with strong risk management and a level-playing field for all the market participants.