Nearly 40-odd commodities listed for trading on the futures market are set to be delisted in the next six months.
The market regulator, the Forward Markets Commission (FMC), has told all commodity exchanges to review illiquid contracts (those in which there’s been no trading for years) before sending proposals for their renewal. According to the FMC website, the regulator has granted approvals for forward trading in 113 commodities. Of these, 25 are highly liquid and 25-30 are semi-liquid. Around 10-15 witness opportunistic trade. The remaining 40-odd are categorised as illiquid contracts.
A senior exchange official said, “FMC has asked commodity exchanges to prepare a justification note before submitting a proposal for renewal in illiquid commodities. For example, a commodity offered for trading failed to attract participation and exchanges kept on getting it renewed for years. The exchange seeking further renewal would require justification for its presence on the platform.” Exchanges would also have to file full details of the efforts made by them for attracting participation in that commodity, he added.
As mentioned earlier, a commodity in which no trading has been noticed for years together is categorised as an illiquid contract. In a number of commodities, contracts go illiquid after an initial euphoria, a cause of worry for FMC.
“About 43 commodities would automatically get delisted (as there is no volume on these commodities listed on various exchanges),” said another official with a leading exchange.
Of the 21 recognised exchanges, the Multi Commodity Exchange, National Commodity and Derivatives Exchange, National Board of Trade, National Multi Commodities Exchange and the ACE Derivatives & Commodity Exchange contributed 99 per cent of the total value of commodities traded during 2011-12.
Of the 113 commodities regulated by FMC, the prominently traded ones in terms of value are gold, silver, copper, zinc, guar seed, soy oil, jeera, pepper and chana. The total volume across all exchanges in 2011-12 was 1,402.6 million tonnes, worth Rs 181,26,104 crore.
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FMC has been taking measures to make the market more transparent. It recently disallowed trading in several lean season contracts.
Earlier this kharif sowing season, commodity prices were hitting the roof, especially in the futures market, where hedgers and other participants booked these in high quantity, amid expectations of further escalation in prices due to less crop. Since seasonal rainfall was delayed by nearly two months, lowering the sowing area, crop output was estimated to remain low this season. Consequently, prices of agri commodities started hitting highs, with a majority of kharif-sown crops hitting the upper circuit every other day.
In response, FMC introduced cash special margins in most price-sensitive commodities, reducing clients’ exposure proportionately. The margins were raised intermittently to bring down volatility and the potential for price manipulation. However, with the resurgence of monsoon rainfall, the prospects for kharif-sown crops revived, cooling prices. In response, FMC has reduced the margins on most agri contracts.