Foreign bourses may get nod to enter India

Various foreign commodity exchanges are in talks with the Forward Markets Commission (FMC) to enter India, said S Sundareshan, chairman of FMC.

"The government is considering the entry of foreign exchanges and will take a decision at an opportune time," said Sundareshan, without divulging further details, on the sidelines of a seminar organised here by the Commodity Participants Association of India.

Recently, the FMC had issued a notification stating that foreign commodity exchanges setting up terminals in India without its or the government's prior approval would be considered illegal.

The FMC said, "We are not saying anything new, and just stating the law of the land. We had received reports that some brokers were offering trading services on international comexs, which we have made clear is an illicit offering. Thus, by declaring it illegal, we have initiated an effort to educate investors."

"The issue of implementation will arise only after we ensure that investors are aware of its illegality," the FMC said.

Sundareshan clarified that the $25,000 remittance window allowed by the Reserve Bank of India to trade in overseas exchanges like Comex, the Chicago Board of Trade and the Dubai Gold and Commodity Exchange, will stand.

Recent incidents of huge volatility in commodities such as gold and silver had led the exchanges to raise margins to a high level of 16 per cent in some cases. Thus, the FMC said, "We will be meeting the exchanges next week on the issue of margins and work towards a permanent solution. We feel a mechanism is required to keep the margins rationalised. Also volatility without direct correlations will also be looked into."

Regarding normalising trade in narrow commodities, the FMC said, "We have asked the exchanges to introduce contracts for domestic varieties. However, we are yet to take a decision on whether we need to put a stop on trading of foreign varieties. That is still being considered."

"The commodities market In India grew at 350 per cent in the last financial year. However, it may not be possible to see growth at similar levels in the current year as well," said Sundareshan, without giving much details.

In 2005-06, the commodities sector turnover was at Rs 21 lakh crore compared with Rs 5.71 lakh crore the year earlier.

The commodity regulator said, "We feel that banks have a specific role. They will be there to trade but to refinance, acting as aggregators and connecting rural India with the commodities market. Warehousing system can here act as the most important link and banks can also provide credit against the goods deposited in the warehouses."