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'We need more hedgers in the market'

TRADE TALK: B C Khatua

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Rajesh Bhayani Mumbai
B C Khatua, the new chairman of the Forward Markets Commission (FMC), talks to Rajesh Bhayani on his priorities for commodity futures. The commodities market regulator is keen on introducing options trading and attracting more participation from hedgers. Excerpts:
 
What are your priorities as chairman of the FMC?
 
We are waiting for more powers, which will come to us when the Bill seeking amendments to the Forward Contracts Regulation Act (FCRA) is passed by the Parliament. The law ministry is examining the Bill and it will then go to the Cabinet for approval. We expect the passage of the Bill in the next session of the Parliament. The amended Act will give us more powers and autonomy to restructure and modernise the FMC. We will recruit talented personnel from the market.
 
How will the commodity futures market benefit from an empowered FMC?
 
With the legal framework in place, we will be able to introduce options trading. Futures and options go together and make a full-fledged futures market. Trading in indices will also be possible after the FCRA is amended.
 
What are the deficiencies in the market at present and how can they be addressed?
 
I prefer to see stronger linkages between the futures and the spot markets and more participation of hedgers in the futures market. Hedgers, currently, are not attracted to commodity futures. Their presence differs from commodity to commodity.
 
We have enough risk takers in the market currently, but the market is missing hedgers, who pass on their risk to the market. If hedgers are present, speculators will always have to keep spot prices in mind, especially when the contract is set to mature. This way a futures market will develop a strong link with a spot market.
 
PAN has become a unique identification number for capital market transactions. What is the status in the commodity futures market?
 
As far as PAN is concerned, we have made it compulsory, but exempted a section of the market from it as the commodity futures are in a developing stage. For instance, we want more and more farmers to participate in the market. We have exempted them from providing PAN as they are not subject to income tax. Client IDs are sufficient at the exchange level. We don't regulate the clients of exchanges directly. It is possible that a client operating through more than one exchange may have been allotted more than one ID. Our ultimate goal will be to move towards a single unique ID.

 
 

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First Published: Jun 17 2007 | 12:00 AM IST

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