FMC panels set up to assess bank, MF, FII entry

The Forward Markets Commission (FMC) has appointed committees to study the participation of mutual funds, foreign institutional investors and banks in commodities trading.

S Sundareshan, chairman, Forward Markets Commission, said a couple of issues need to be sorted out in this regard and these include whether and to what extent can mutual funds, banks, foreign institutional investors and options be accommodated into commodities trading.

"The Forward Contracts (Regulation ) Act 1952 (FCRA) in its present form prohibits options, and the Reserve Bank of India has appointed a committee to explore participation of banks in trading," Sundareshan said.

Stating that there was a need to monitor the forward markets in commodities more closely, Sundareshan said data from all markets are scrutinised everyday at 11 a.m.

Besides, every week, there is a commodity-wise study and an interactive system of imposing margins. "The FMC has also begun providing fortnightly information on all trading activity that took place on all the exchanges," he said.

Meanwhile, the FMC is expected to function as an autonomous body, along the lines of the Securities and Exchange Board of India, once the Union Cabinet clears the decks for it.

Sundareshan said once the Cabinet clears the draft proposal, a bill will have to be tabled in the Parliament and the FCRA will have to be amended.

The broad changes that will come about in once these things fall into place will be that the FMC will be able to grant recognition to exchanges, to commodities for trading and also have powers of derecognition.

"Another important thing will be that FMC will be able to use its own funds by charging a very minuscule amount on every transaction that takes place on the commodity exchanges," said.

At present, the FMC draws its requirement of funds from the central government.

He added that with the FMC in the process of increasing its manpower, path has been paved for FMC officers to actually inspect the books of members of exchanges, just like how Sebi does.

"We are going to have a co-ordination committee of exchanges that will meet every two months," Sundareshan said. Meanwhile, the Ahmedabad based National Multi-Commodity Exchange of India Ltd (NMCE) announced on Friday that it will begin an innovative futures trading system where one-day futures will begin.

"To begin with, the one-day futures trading will be in rubber and pepper, and we will subsequently introduce other commodities. The system will begin from June 7. Under the system, the condition will be that outstanding position will be settled by delivery and not by price fixation," said Kailash Gupta, managing director, NMCE.