FMC head not in favour of retail investors in futures

Retail investors may have to stay away from the commodity futures markets for the time being, as the Forward Markets Commission is not in favour of their participation at the moment, Chairman B C Khatua said.

"At the moment, I would not encourage retail participation in commodity futures. Our priority is to bring in the producers and hedgers into the market," Khatua said.

According to him, markets are grappling with more serious issues such as price discovery and price risk management.

Khatua also warned investors about entering into commodity futures trade without a proper study of the markets.

"Commodity markets are not like stock markets. Unless investors have a complete understanding of each of the commodities in its entirety, they should not venture into this market," Khatua said.

He also warned them from relying on advisory services offered by a number of entities through short messaging services on mobile handsets or by phone calls.

The Bill to amend the Forward Contracts (Regulation) Act of 1952 is likely to be taken up in the monsoon session of parliament, Khatua said.

"I am given to understand that the Bill should go through this session," he said.

The Bill empowers the FMC to set up a regulatory framework to help check excessive speculation and manipulation in the prices of commodities.

It will also enable the launch of options as well as futures trade in intangible commodities like index, and weather besides liberalising the sector.

"Of course, the implementation of the Act may take time. Once the Act is through, we have a major challenge implementing it. We will have to operationalise the framework," Khatua said.

The Act has been awaiting the parliament's clearance for several years now.

A parliamentary panel, which presented a study on commodity futures trade and the FCRA, has opposed foreign participation and has also recommended a ban on futures trade in food grains.

FMC has been recommending the participation of mutual funds and banks in the market and is also in favour of foreign direct investment in commodity exchanges, as it will bring foreign expertise as well as broaden the market.

"Any move that deepens, expands the market and improves liquidity is welcome," Khatua said.

The regulator has reservations on exempting banks and mutual funds from deliveries on expiry of contracts, once they are allowed to trade in commodity futures. The FMC is also yet to decide whether they will be allowed as members or clients, or both, although exchanges have been in favour of both.

"I have no fixed view on the nature of their (MFs & banks) participation and it can be reviewed when they are allowed (to trade)," Khatua said.

However, he pointed out that changes in commodity futures market may have to be done gradually.

He also agreed that government intervention in the form of a ban on futures trade in some commodities does not augur well for the markets.

Earlier this year, the government had banned futures trade in urad (black matpe), tur (pigeon pea), and wheat.