Commodity markets regulator, the Forward Markets Commission (FMC), is all set to grant permission within a week to commodity exchanges to re-launch contracts in four commodities, which were suspended seven months ago.
Futures contracts of soyoil, chana (chickpea), rubber and potato were suspended from May 6, initially for four months, to address fears that futures trading was contributing to inflation. Later, the suspension was extended for three months till November 30. The suspension order of the regulator mandated re-approval of these contracts after the automatic lapse, in case it was not further extended.
The decision was a pleasant surprise for hedgers as they were not expecting any action before the general elections in the country.
The suspension was announced when inflation was sky-rocketing and the Left parties were blaming the futures market for price rise in spot markets and thereby, raising inflation. Later, though, no link was established for such a price rise. Hence, even FMC advocated lifting the suspension, which was creating negative impact in the market.
As the FMC issued no circular to extend the suspension further, commodities exchanges including the Multi Commodity Exchange of India (MCX), the National Commodity & Derivatives Exchange (NCDEX) and the National Multi Commodity Exchange have applied for fresh approval from the FMC. According to Joseph Massey, MD, MCX, “We applied for fresh approval in all four commodities for the contract beginning December.”
Even if FMC grants permission to launch the four commodities, the success of these contracts would take much longer than market estimates, said Massey. This is because the market requires to create confidence in all stakeholders of futures platform. So, it would take much longer for the contracts to become successful, he said.
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Generally, a contract is tested within 4-5 months of the launch and even longer for its success. But, the four suspended commodities proved very successful within 2-3 months when they were launched first till they were suspended.
Soyoil trading during April 2008 generated a total turnover of around Rs 18,000 crore while chana, rubber and potato traded worth over Rs 15,000 crore by all exchanges together.
Before suspension, potato and chana was largely traded on MCX while rubber was traded on NMCE. Soyoil generated huge volumes on NCDEX and the Indore-based National Board of Trade (NBoT).
However, exchanges would be able to launch fresh contracts only next month, that is, in January, an expert said.