'Well-regulated speculation will help market grow'

TRADE TALK: PH Ravikumar, MD, NCDEX

Managing Director and CEO, National Commodity & Derivatives Exchange (NCDEX), P H Ravikumar talks to Rajesh Bhayani about the exchange's emphasis on increasing speculator participation. A well-regulated speculation will help hedgers to pass on the risk, he says. Excerpts:

The NCDEX volumes are falling because of recent regulatory actions. What are the plans to recover the volumes?

Volumes have come down from Rs 6,000 crore to Rs 2,500 crore and are around Rs 4,000 crore now because of regulatory actions . To increase the volumes and attract hedgers, we are emphasising on increasing the participation of speculators. Actual users, hedgers, arbitragers and speculators are all necessary in the market. Actual users and hedgers pass on their risks to speculators. With modern-day technology, the surveillance and monitoring of speculators is not difficult. We do monitor members' positions on a real-time basis. There are some exchanges in the US which are not able to do so, as yet. We also monitor client-wise positions on a daily basis. A well-regulated speculation will help the market grow.

Would the declining trading volumes affect the valuations of the exchange vis-a-vis new investors?

We do not go by valuations, but by the strategic inputs that investors bring to the table. Goldman Sachs, which is an equity holder in the exchange, is bringing in its know-how. Besides, we believe that exchanges don't need money as much as new surveillance techniques and other such measures.

With the government planning to hedge its risk while procuring wheat in the global market, don't you think the same should be allowed for the private sector?

It is an irony that the government understands the importance of hedging and is therefore planning to buy wheat call options, but it is not allowing the same facility to the domestic players. A committee is now trying to find a way out.

The RBI has allowed hedging in the international market. What is your comment?

It is good that banks will be able to hedge clients' positions in the international markets. Banks can neither hedge nor participate in the local commodity futures market. An RBI committee has also recommended that banks should be allowed in the commodity futures market.

How are the spot exchanges progressing?

Many states are amending their respective APMC Acts. Under the present set-up, each APMC has to be registered. The Madhya Pradesh government has offered us a unified licence for the whole state. We expect other states to follow suit. We are ready to render all assistance and provide for mandi tax. Madhya Pradesh, Punjab, Haryana, Uttar Pradesh, Rajasthan, Gujarat, Karnataka and West Bengal are in the process of ensuring that spot exchanges start functioning.