FIs, FIIs may be allowed in commodity futures

The ministry of consumer affairs are in favour of allowing institutional investors in commodity futures but with stringent terms. This is despite the parliamentary standing committee's recommendation last week that mutual funds and FIIs should not be allowed in commodity futures.

The ministry also wants more powers to the Forward Markets Commission (FMC) and permission for option trading.

The ministry thinks that the Forward Contract Regulation Act need not have provisions relating to which entities should be permitted in commodity futures.

"These are executive decisions and need not be part of the At," said sources close to the ministry. It is also learnt that government is not in favour of bringing in the changes in the Act through an ordinance as is not a politically prudent decision.

The ministry plans to give a point by point reply to the standing committee to explain why some of its observations were not acceptable. The revised Bill incorporating changes like more powers to FMC is expected to be introduced in the Budget session of Parliament.

The proposal to allow institutional players is now confined to bullion, metals and crude oil, and not agri-commodities.

The sources said there was no logic in not allowing foreign intermediaries/ brokers in areas where they can help expand the market.

The ministry is also not aggreable to the standing committee's suggestion of setting up a separate appellate authority and a three-month time limit to dispose of cases.

"The time limit for an administrative decision is acceptable but no such limit can be imposed on the judiciary," the sources said.

Even the Securities Appellate Tribunal (SAT) is capable of handling commodity futures and the ministry thinks there is no need for a separate appellate authority.

The parliamentary standing committee also said in its report that FMC should not be exempted from tax as it is a 'commercial' organisation. However, the ministry disputes this.