 "Commodities market out of NSEL shadow: FMC chief")
Ramesh Abhishek has almost spent three years at commodity market regulator the Forward Markets Commission (FMC) and is currently on an extension as chairman. A Harvard alumni and an IAS from the Bihar cadre, he has taken several measures to revive confidence in commodities futures. In an exclusive interview, tells Rajesh Bhayani that delivery-based forward trading permitted in commodities is a game-changing measure. Edited excerpts:
Do you think commodity exchanges are out of shadow of the NSEL crisis?
Yes, very much. We had ring-fenced MCX soon after the fraud to keep it out of shadow of the crisis in an exchange which was promoted by the founder company of the MCX. However, there was an issue of confidence in the exchange industry as the NSEL crisis followed the imposition of commodities transaction tax. Hence, volumes had been affected due to expanding jobbing spreads. Now, volumes have grown and I can say that the impact of NSEL crisis is no longer there and only impact of CTT has remained. Part of the fall in volumes is also explained by the lower commodities prices as well as reduced price volatility itself in general.
Even at MCX average daily volumes have reached to Rs. 25-26,000 crore. In the past week, in one day, its total volume was at a 16-month high. In other words, due to several initiatives taken by the Forward Markets Commission, market participants’ confidence has revived.
Which FMC initiatives have been proved as most influential?
I can name a few, though initiatives have been many. We have permitted evening trade in many agri commodities, especially those which have 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 ease of doing business for members as well as clients which include freedom to exchanges to modify most contract specifications. These measures are resulting in many large participants increasing their presence and hedging their positions and now we are also considering allowing foreign hedgers on national exchanges to hedge their risks. Corporate governance norms introduced by the commission has made exchanges free from interferences.
The most important of these measures is introduction of delivery based forward trading which will prove to be a game changer for commodities market. Forward trading is something regularly done on spot markets but since deliveries are at future dates, it perfectly falls under FMC.
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But except one exchange, others are yet to catch up the idea of launching forward trading?
Apart from one which had already launched such trades, Ahmedabad-based National Multi Commodities Exchange (NMCE) has also proposed to launch forward trading and they are likely to get approval soon.
In castor and coriander there were several complaints of excess speculation and now in jeera (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. Over 1.5 lakh tonnes of castor seeds and over 6000 tonnes of coriander are already delivered. Those who might have been trying to manipulate the market through cornering the physical and short squeeze of futures have been given a strong message that commission will not permit such market abuse and will take prompt and effective 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, so far there are no complaints. However, we are sending our team to producing centres to gauge the situation and after that we will decide if it requires any action.
I can assure the market participants that commission is fully committed through its strong monitoring and surveillance mechanism to properly regulate the market and provide a fair and transparent platform with strong risk management and a level playing field for all market participants.