FMC to get tough on price manipulators

Commodity market regulator Forward Markets Commission (FMC) on Thursday said it is not opposed to speculation in the futures markets, but would not allow artificial jacking up of commodity prices that would affect average consumers.

"We are not against speculation, but definitely against price manipulation," FMC chairman S Sundareshan said at the second annual commodities conference here, organised by Assocham.

Speculation can be tolerated as part of futures trading, but price manipulation will be checked at any cost as economic interests of farmers and consumers are directly involved with the prices of essential commodities, he added.

He said interest of farmers have to be protected as they are the producers of the agricultural commodities.

Farmers by taking part in the commodities futures trading can benefit through price discoveries and risk coverage, he said, adding: "Price manipulation will not be permitted in any case at the commodities exchanges."

He made it very categorical that the commodity regulator keeps a close watch on the price movements at the commodities exchanges, more so for commodities of essential items like wheat and sugar.

Sundareshan, however, ruled out any abnormal price rise in wheat and sugar in recent months and said whatever upward movement took place in these two commodities are quite in sync with the market trend.

He asked the exchanges to improve their performances in physical delivery of the contracted commodities.

"We are working to make the existing delivery mechanism at the exchanges more widespread," he said.

The FMC is seriously looking into the issue of overlapping of commodities at the exchanges, he said and added: "We want each exchange to specialise in a particular commodity or set of commodities for deriving competitve advantages.

On the existing regulatory mechanism for commodities markets, Sundareshan said a clearance of the bill on the Forward Contracts Regulation Act would empower the commission by according more financial and functional autonomy to it.

An immediate passage of the bill would lay down the provision to introduce specialised products like weather and emission derivatives at the futures market, he added.

On banks' role in the commodity futures, he said, "The RBI has envisaged different roles for them. We cannot frame new roles for them."

He also said the RBI guideline on allowing foreign funds in commodity services holds true as the commission has mandate of only obeying the central bank's norms.

The FMC chief said the regulator is trying to evolve a mechanism wherein farmers, either in groups or cooperatives, could take part in the commodity futures trading.

Trading value at the commodities exchanges increased by nearly four times to Rs 21,00,000 crore in 2005-06 as against Rs 5,11,000 crore in 2004-05.

Favouring charging 5 per cent penalty for defaulting in case of compulsory physical delivery, he said this norm should strictly be followed for ensuring success of the exchanges.