FMC decision on illiquid commodities soon

Forward Markets Commission (FMC) may soon take a final decision on illiquid commodities trade on comexes.

"Now, the time has come to decide on such trades and we will take a final decision soon," said Kewal Ram, member, FMC.

The commodities market watchdog used to permit such trades for a year, which was brought down to six months, with contracts running from January to June and July to December.

The exchanges have now sought approval for launching the July contract in March.

Without fixing any timeframe, Kewal Ram said the FMC was planning to announce its final verdict on illiquid commodities soon.

Meanwhile, in its interaction with the commodity exchanges, the regulator has asked them for the current status on the commodities and is awaiting their response.

"There will not be any blanket ban on the commodities which have not been trading for the last two years. We are going to consider all aspects, including the responses from the exchanges before taking any decision," Ram added.

Experts believe that in this process some newly launched commodities may also lose their turn and some in the waiting may not be launched, if not presented properly.

Ram further clarified that the regulator would not be harsh on the commodities that remained untraded for long than the newly launched commodities.

Some commodities have not been traded since their launch, while some have not seen any trade in the last two year after a flamboyant debut. At present, the ratio of success to failure stands at 1:5 in India against 1:10 in the developed countries.

The regulator had observed in the past that contract designs and feasibility study by the exchanges needed to be looked at differently.

Exchanges kept on launching some commodities or the other, irrespective of their availability or interest of traders and consumers, compelling the FMC to rethink on norms, experts said.

Often, after a few days of the launch, these commodities either fail to attract traders completely or are traded in very small quantities, leaving the burden of price updates on the exchanges without generating any substantial returns.

Also, the prices of these commodities move in tandem with their liquid partners or the movement in the spot market. Usually, if there is no trading on a daily basis, the prices of illiquid commodities take a direction depending upon the general market sentiment.