FMC may rework guidelines for exchanges

The department of consumer affairs secretary L Mansingh said on Friday that the department had asked the commodities market regulator, Forward Market Commission (FMC), to issue guidelines to help evolve "healthier competition" between the exchanges.

"We are constantly looking at the markets and feel that a healthier competition is needed. Thus, we have asked FMC to come up with guidelines on this," Mansingh said on the sidelines of a seminar on the occasion of World Consumer Day.

He added that this was part of an ongoing process but refused to elaborate. FMC chairman S Sundareshan did not wish to comment on the matter.

On a regular basis FMC works on various ways and means to curb undue speculation, especially in case of narrow commodities like the guar complex, mentha oil, burmese urad, lemon tur, among others witnessing huge volumes.

For instance, the Burmese urad contracts on the National Commodity and Derivates Exchange and Multi Commodity Exchange have an annual volume of 4 lakh tonne when the actual imports are just about 1.5-1.8 lakh tonne. India produces about 12-14 lakh tonne urad annually but it is not traded on domestic exchanges.

To sort out this anomaly, the FMC is also working on changing contract design in a bid to remove the narrowness in contract specifications and inclusion of more varieties, a senior FMC official said.

The regulator has also asked the exchanges to ponder upon the number of contracts required in a year for agricultural commodities and if doing away with the harvest month contract can help curb undue speculation.

Sources suggest the regulator feels that 3-4 contracts a year are enough for an agri-commodity as most contracts are for a 3 or 4 month periods.Thus the contracts will cover the whole year.

"Basically a debate is required 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 a FMC member.

Harvest month contracts usually see a substantial fall in commodity prices in anticipation of huge arrivals. Punters are said to play heavily on these sentiments. Exchanges and market players, however, are sceptical over such limitations.