Curb speculation in commodities: FMC

The Forward Market Commission (FMC), the regulator for the commodity markets, has taken strong note of the speculative element of activity in commodity exchanges.

At an informal meeting in Mumbai yesterday with the three demutualised national multi-commodity exchanges, the Multi Commodity Exchange (MCX), the National Commodity and Derivative Exchange of India (NCDEX) and the National Multi Commodity Exchange (NMCE) to discuss a number of issues, the FMC asked the exchanges to exercise caution and tighten their risk containment systems.

The FMC reportedly told the exchanges that there is evidence of speculation in some commodities which is hurting the growth of an orderly market in agri-commodities.

Chairman of the FMC, Kewal Ram told Business Standard: "The discussion brought a number of issues to the table, the most immediate of which is that the exchanges are not following the gross margining approach. The exchanges have been asked to switch over to the gross margining system at the earliest possible, and that price abnormalities be more closely supervised."

He added that as the FMC currently does not monitor activity at the client level, it is necessary that the exchanges put in place more stringent norms on this front, so that client risk does not spread through the entire system.

The FMC also took note of the growth of business activity on the commodity exchanges, and also advised the exchanges to curb their branding activities in competition with the rival exchanges.

"There has to be a concerted attempt to grow the commodity business," said an exchange official, who attended the meeting told Business Standard.