FMC to kick off standard price distribution system

Traded volumes expected to rise, regional exchanges to be set up

The Forward Markets Commission (FMC) will introduce a standard price disseminating system soon, according to its chairman S Sundaresan. The system will enable exact spot prices of commodities to be disseminated all over the country.

The commodity market regulator had earlier undertaken a pilot project in this regard in Gujarat with the support of three major commodity exchanges.

Addressing a trade meet organised by the India Pepper and Spice Trade Association (IPSTA) here today Sundaresan said there had been complaints over spot prices of commodities as major exchanges pass on different prices.

He said the bill to amend the Forward Contract Regulation Act of 1952 had been introduced in Parliament, adding he hoped it would be passed in the current year itself.

The bill will enable FMC to introduce options trading in futures market and will bring about a sea change in the market. As FMC will get functional autonomy and will have strict control over the market much like Sebi has over the stock market.

Moreover, mutual funds and FIIs would also be allowed into contract trading in the commodity futures market. The volume of business too will increase when new exotic products are introduced in the market, he added.

Sundaresan said there had been 350 per cent growth in commodity futures trading in 2005-06 as on March 15, with total turnover crossing Rs 19,50,000 crore ($420 billion).

Total volume of trade during the last financial year was 5,71,000 crore ($128 billion). The National Commodity and Derivatives Exchange (NCDEX) and the Multi Commodity Exchange (MCX) had traded more in volume terms than the Bombay Stock Exchange (BSE).

He said that already 93 commodities had been allowed to trade in the futures market and 60-80 of them are being actively traded on a daily basis.

"The next financial year would be a period of change as against this year which was the year of consolidation," he added.

He said that compulsory delivery would be introduced on outstanding positions on expiry of the contract.

But this has several practical problems involved such as warehousing, quality assurance and timely delivery throughout the country.

Unlike stock broking, the government is very keen on developing regional exchanges. The FMC had succeeded in convincing the government regarding the identity and importance of those exchanges. FMC had already initiated a two way strategy for the purpose: strengthening of technology and human resources.

Sundaresan further said that the FMC would finance the regional exchanges in these areas. It has already accepted a strategy to allow exchanges to commence trading in additional commodities. The government had accepted the guidelines in this regard, which has been circulated to the exchanges.

He said the technological platform of the exchanges should be enhanced and they should work in a more professional manner.