Cap on trade may go, say experts

The current ceiling on open position and trading imposed by the Forward Market Commission (FMC) may result in a severe volume reduction on commodity exchanges, said experts at the meet.

They said they expect the FMC to roll back the ceiling after studying feedbacks from the market.

They said there has been massive reduction in the volume of a section of commodities traded over the last six months owing to the floods and the imposition of ceiling would further drive the traders away from the market.

"The FMC is talking of possible entry of FIIs and Mutual Funds into commodity trading. Such institutional investors would not enter commodities market with the present insignificant volume," a participant said.

P H Ravi Kumar, MD and CEO, NCDEX, however, said, '' If they can enter equity markets, I see no reason why they can not enter into commodities."

"Ceiling on open position would invite more participation, which is healthy for better price discovery, but the traders with large investment capacities would be badly hit by FMC's current ceiling," he added.

Ravi Kumar said despite having more trading options including spot, stocks, currency, derivatives, bonds and options, the commodities market solely depend upon futures.

Commodity market size is only 60 per cent of India's GDP and has room to grow up to 10 times. Hence, the growth potential is immense in commodities trade, some of the participants pointed out.

Around 7000 mandis across the country are regulated by various state governments. "We are planning to bring all the state level mandis to a single platform. Then it would be easier to forge closer ties between spot and future exchanges," Ravi Kumar said.

Many of the participants expressed the need of institutions such as Food Corporation of India to play a bigger role in commodity market just like LIC and others institutions taking control of equity markets in case of major volatility.

The entry of such institutional investors would help to stabilize price variations in the commodity markets, they said.