FMC pins riders on banks, MFs

Players restricted to trade in crude and bullion.

The Forward Markets Commission (FMC) will restrict banks, FIIs and mutual funds to trade only in crude oil and bullion in the commodities markets, said its chairman S Sundareshan.

The commodity market regulator has already written to the State Bank of India for its participation and the in-principle confirmation is awaited, Sundareshan said at the first convocation ceremony at Welingkar Institute of Management Development & Research's Diploma in Commodities Market (DICM). The course is designed and sponsored by the Multi Commodity Exchange of India (MCX).

Sundareshan said that despite being at a nascent stage, the commodity market is inexplicable linked to the world market and the daily price discovery in the international market has a direct implication on it.

Elaborating the FMC's role in moulding commodities market in general and the exchanges in particular, the chairman said that the commodities market is young and growing by leaps and bounds.

The commodities exchanges have witnessed a gigantic single-side volume of Rs 25,000 crore, out of which the MCX contributes approximately Rs 20,000 crore, in a short span of two years.

"While dealing with such an enormously growing market, we do face some problems but in the end, as a regulator, we ensure that the investors' interest is protected," he added.

Sunderashan also justified speculators's active support for market lubrication by saying that they are the integral part of future trades as everybody wants to book profit which is impossible without market speculation.

Farmers' interest is opposite to consumers as the number of gainers and losers is the same at the end of trade. Hence, profit makers always leave equal number of players unhappy and that is the real meaning of futures, he defined.

FMC would be celebrating 2006-07 as "a year of consolidation", which will entail setting up parameters for the launch of fresh commodities on the exchanges.

Presently, the FMC has permitted futures trading of 90-odd commodities on the three national and 21 regional commodities exchanges out of which only 36 are active.

Multiplicity of contracts is another problem that that FMC is looking to address. The parameters for launching same commodities futures on different exchanges which differ in quality, prices, settlement dates and trading lots is a problem which the FMC is looking into, Sundareshan said.

The commodity market regulator is also working on preparing a system for uniform spot price collection and dissemination of prices to traders and farmers. Sundareshan strongly objected to the possibility of merging the FMC with the Securities and Exchange Board of India (Sebi) and advocated the body's financial and functional autonomy for the control over commodities markets.

"We are looking to establish an institution to attract global players to trade on existing commodities exchanges," he said.

The MCX is going to become a global commodities exchange very soon. International traders are already doing business on the MCX indirectly, MCX sources said. The commodities futures markets are on the cusp of transformation and such initiatives would go a long way in developing the entire commodities ecosystem in the country, he added.

DICM is a three-month course which provides students physical and futures market-oriented training.

The commodity market has been facing trained manpower shortage which the FMC, in association with MCX, has tried to address. Welingkar's diploma course is the first step in that direction.

The FMC has already written to 17 educational institutions including the IIMs to start courses on commodities for which the regulator is ready to cooperate in every possible way, including preparation of syllabi.

Jignesh Shah, managing director and CEO, MCX said, "With the commodity market all set to play a major role in the economy, there is need for more professionals to manage multi-dimensional and multi-time-zone operations involved in commodities market across the value chain. It is with this objective in mind that the MCX and Welingkar had started offering Diploma in Commodities Market."

"CommoditIes is a sunrise industry and training professionals for this industry is itself a pride for Welingkar which is first of its kind in India," said Prof Dr Uday Salunkhe, director, Welingkar.