Futures in commodities to stay: FMC

Commodity market regulator Forward Market Commission (FMC) today reiterated its stance on strengthening futures trade of commodities.

In a meeting of all stakeholders of commodity market, the FMC outlined various measures including stiff penalties on crossing the open interest limit, permitting regional exchanges for multi-utility commodities and organising educative forums in association with reputed institutes to take commodity trading forward.

"The recent rise in commodity prices is largely due to macroeconomic factors and not because of futures trading. Any rise in commodity prices depends purely on demand and supply. We (futures trading) are only a messenger and by killing the messenger you are not achieving anything," FMC Chairman S Sundareshan said.

No presentation was made calling for ban on illequid or narrow commodities. Instead, stakeholders advocated to make narrow commodities more restrictive.

Most of the trade bodies were in favour of futures trading. However, members of Sugar Merchants' Association proposed to the FMC that futures trading in the sweetener be suspended until the commodity is fully de-controlled.

"Sugar industry representatives have suggested suspending futures trading as the commodity is still under control of the government," he said.

According to him, price discovery and risk management "" the main function of commodity futures markets "" are difficult where there is active government intervention and hence the need for suspension.

The meeting was attended by representatives of trade and industry bodies like Assocham, Ficci, Indian Merchants Chambers, Tea Board, Bombay Bullion Association and the associations of mentha oil, pulses, guar gum, soyabean among others.

The meeting assumed significance against the backdrop of widespread criticism from various quarters that the recent rise in prices of essential commodities was largely due to speculative trade in futures.

More such meetings would be convened in different regions and one annual gathering would be called on by the regulator every year, Sundareshan said.

While talking about the cap on manipulators, Sundareshan said that FMC and national exchanges would work together to nab the miscreants.

According to him, banks' role in participating commodities futures would be different from the role of the foreign institutional investors (FIIs) and mutual funds (MFs) as banks would not be the direct party of trade. They would finance the physical participants. Banks may finance farmers for irrigation and fertility, Sundareshan said.

The FMC has directed exchanges to follow systems in commodity derivatives markets, based on global best practices like nation-wide electronic system, anonymous trading environment with single order book, demutualised governance structure with professional management, participation of institutional investors in the equity of exchanges and superior clearing system on T+1 basis (as against T+2) in securities market).