The Forward Markets Commission (FMC) and the ministry of consumer affairs may continue with a combination of more margins and reduction in open position limits to curb volatility, rather than banning futures trade in the eight commodities now under scanner.
The commodities under review are chana, potato, soybean, mentha oil, soya oil, mustard, pepper and cardamom.
Official sources close to the development said banning futures trade “off and on” sends a wrong signal to genuine market makers and traders who opt for trading in the market with a long-term perspective and for price discovery. As a drastic measure, even contracts could be postponed temporarily, as already done in the case of guar and guar gum, if volatility persists, rather than banning the futures altogether, they added.
FMC has been trying to get more hedgers into the commodities market through institutional and retail support, said official sources.
While the ministry of consumer affairs is conducting an enquiry into the futures price fluctuation of guar and guar gum, it has decided to set up advisory committees to study price trends of other agri futures (chana, potato, soybean, mentha oil, soya oil, mustard, pepper and cardamom), he said.
The ministry also proposes to ask states specific to the commodities under vigil to impose stock limits per person, as was done in the case of sugar and wheat.
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“A suggestion was made to the Rajasthan government for imposing person-wise holding in guar gum as well but since it was not an essential commodity, nothing much happened. Imposing stock limit is a state subject and the Centre can only advise. If the stock limit is imposed, then the speculative end of the trading is curtailed, as FMC reviews the delivery positions upon expiry of contract and the contract rolls over in a certain commodity regularly,” added an official source. Stock limits check holding per trader per person and thus check hoarding of commodities. Violation of stock limits is a criminal offence.
Of the eight, potato, chana and mustard are essential commodities. Chana and mustard fall under the category of edible oil and pulses. While there are stock limits on holdings of edible oil and pulses, agricultural commodity-wise holding limits could also be imposed, official sources added.
Margin is the amount of deposit, which a trader or a broker has to maintain with a commodity exchange before trading and open interest in a commodity refers to the total of futures or options contracts yet to be settled (meaning, not closed or delivered) for a specific underlying security.
During the current month, FMC has already increased the minimum margin to be paid to initiate trading in these commodities and reduced the open position limits. It has imposed special margins on all these commodities as well.