FMC may ban futures in narrow commodities

The Forward Markets Commission (FMC) is seriously considering a ban on narrow commodities from futures trade to stop the practice of price rigging by a handful of traders.

Narrow commodities "� such as guarseed, guargum, mentha oil, etc "� are produced only in certain pockets of the country.

"We are seriously debating whether to continue with the futures trade of narrow commodities or not," said S Sundareshan, chairman, Forward Markets Commission. He was speaking at a seminar, Commodities Roundtable: Vision 2010, in Mumbai.

Referring to the recent rise in commodity prices, the FMC chief said it was due to macro economic factors and not because of operations of the futures market. The government had, on June 22, banned pulse exports in order to curb the rise in prices.

The regulator also denied any move by the government to ban futures trading in essential commodities.

Defending the export ban and granding of permission to private parties to import sugar and wheat, Labanyendu Mansingh, secretary, department of consumer affairs, ministry of consumer affairs, food and public distribution, said the government intervention was necessary as the prices were going beyond the common man's reach.

However, he cautioned that frequent government intervention might disturb the normal trades on commodity exchanges.

Dwelling on the challenges before the regulator, Sundareshan said: "Multifacility of commodities on different exchanges is a unique system which is nowhere available except India. We are also studying the possibility of specialising exchanges with commodities."

Banks, mutual funds and financial institutions have so far been not allowed from trading in commodities.

"The major hurdle in permitting financial institutions, banks and mutual funds are the lack of trained manpower. But, the FMC and the national commodity exchanges have made efforts to generate skilled manpower to fulfil the need," pointed out Mansingh.

Dwelling on the shortage of skilled manpower, Mansingh said the FMC has already recommended the government to make necessary amendment to direct educational institutes to add commodities into its curriculum so that required manpower is created over a period of time and then pressed into service.

He patted NCDEX and MCX, two exchanges, for bringing superior and transparent technology for commodities futures five years ahead of the developed nations.

The regulator is now studying the potentials of regional commodities exchanges and they can be permitted to launch few more contracts very soon for their survival, Sundareshan said.