FMC for fewer agri contracts

Feels it will help curb undue speculation

The Forward Markets Commission (FMC), the commodities market regulator, has asked the national exchanges to consider the number of contracts required in a year for agricultural commodities and also if doing away with the harvest month contract can help curb undue speculation.

"We feel that there needs not be a contract every month, especially in case of agri commodities. There needs to be a rationalisation on this front, and we have asked the exchanges to think about it," said Anupam Mishra, director, FMC.

FMC will soon be sending a note regarding the matter to the national exchanges, National Commodity and Derivatives Exchange (NCDEX), Multi-Commodity Exchange of India (MCX) and National Multi-Commodity Exchange.

Sources said the regulator feels that three-four contracts a year are enough for an agri commodity, as most contracts are for a three- or four-month period and, thus, cover the crop year.

"There should be a debate on what should be the number of contracts required in a year, with respect to the crop cycle. After all, there needs to be an economic justification," said an FMC member.

The harvest month contracts usually see a substantial fall in commodity prices on the hope of huge arrivals, and punters are said to play heavily on these sentiments.

Exchanges and market players, however, are sceptical about such limitations. "At NCDEX, there is already no contract for mustard for the month of April, which is also the harvest month. But this was largely due to the fact that deriving a spot price for this month was becoming quite difficult. However, limiting the number of contracts to three-four a year or not having a harvest month contract will be like interfering in the market," said a senior NCDEX official.

An MCX official said, "There can be various means and ways to curb too much speculation in the market. The recent FMC notification cutting open interest of seven regional commodities to one-tenth in near month is one such regulation. Having a harvest month contract or not having it is certainly not the solution. Rather it may act as an interference in the way the market operates."

Market players suggest that the number of contracts cannot be restricted like this, as each agri commodity is different and many are even regulated by the government.

"For instance, there are commodities which have harvest every two-three months. What will the exchanges do in these cases? In case of perishables, like onion for instance, which has a domestic harvest every two months, it will be further difficult to manage," said an analyst with a top brokerage house.

Another analyst, however, pointed out that in case of commodities where the harvest is either in kharif or rabi, the concept of three-four contracts a year can work as it will not only cover the harvest period but also the lean period. "After all, the purpose of futures is also price discovery," he said.