Centre to pave way for options trading in commodities

The government plans to allow options trading in commodities, said Labanyendu Mansingh, consumer affairs secretary on Wednesday. The government also favours allowing banks and financial institutions to take part in the booming commodities trade, he said.

"We plan to allow options trading in commodities to spur the growth in commodities trade, which has already been growing exponentially," said Mansingh on the sidelines of a conference organised by the Associated Chambers of Commerce and Industry on prevention of counterfeit products.

Banks are eager to take part in commodities trading and the government has already initiated the process to allow banks and financial institutions in commodities futures, he said.

"We had written to the Reserve Bank of India (for participation of banks and financial institutions in commodities' trade). The issue is pending with the central bank," Mansingh said.

All these steps are aimed at further accelerating the phenomenal growth in the nascent commodities trading in India.

The total volume of trade on the Indian commodity exchanges has shot up to Rs 7.8 trillion during the first half of the current financial year, compared with the Rs 5.71-trillion trade during the last financial year, which ended March.

According to an estimate, futures in commodities is likely to be half of India's gross domestic product by the end of the current financial year.

The government had allowed commodities futures three years ago, with the Forward Markets Commission as the market regulator.

However, banks and financial institutions have not been allowed to take part in commodities futures. Banks are keen to enter the segment as it will help them leverage on wide nationwide network, Mansingh said. The presence of banks in rural areas will help both banks and farmers, he said.

"By not allowing banks in commodities trade, we have not been able to capitalise on the growth in commodities futures... The opportunity is being wasted," he said adding "Banks will have better exposure in rural areas while credit flows to farmers will increase."The central bank is likely to soon take a view on the entry of banks and financial institutions in commodities futures.

Earlier this week, Mansingh had said the government has ruled out the merger of the Forward Markets Commission, with the capital market watchdog Securities and Exchange Board of India. FMC will be made an independent entity by amending the Forward Contract (Regulation) Act, he had said.

FUTURE CALL

The government also favours allowing banks and financial institutions to take part in the booming commodities trade

Consumer affairs ministry has written to the State Bank of India in this regard and is waiting for the response

All these steps are aimed at further accelerating the phenomenal growth in the nascent commodities trading in India.