FMC unlikely to stop trade on illiquid products

'Comexes need time to work on new contracts to attract trade'.

The country's 24 commodity exchanges are likely to enjoy the liberty to launch products as the Forward Markets Commission (FMC), the commodity market regulator, is unlikely to come out with a regulation to check growing number of illiquid contracts on futures trading platforms.

"The commodity futures markets opened after 60 years of ban and are now hardly 4 years old. Therefore, comexes require more time to work on newly launched contracts to attract trades. We are surely going to enhance testing time for comexes and therefore, have no plan to delist illiquid products," said FMC Chairman B C Khatua.

The view is significant as all contracts launched on the futures platform do not succeed because of various reasons.

There are two ways to look at agri commodities in India: observe success first and then launch contracts for trading and vice a versa. But, the success of contracts depend on lots of other issues including contract design, supply, location of major farming areas etc.

Meanwhile, the ordinance empowering FMC is lined up for the discussion on the Budget Session of the Parliament. FMC is already modifying various regulations, including the commodity broker regulation and the commodity portfolio management regulation.

Unlike developed countries like the US, where farmgate facilities, standardisation and ranking, warehousing and storages, post-harvest care etc are strictly taken care of, India lacks in all these parametres.

Therefore, strict regulation on illiquid, or domant, commodities may not work in India.

But one thing is certain that the futures trading in agri commodities has enhanced the minimum quality standards for foodgrains. "Consumers have started asking for quality products," Khatua said.

Some commodities have not been traded since their launch, while some have not seen any trade in the last two years even after making promising debuts.

The regulator had observed in the past that contract designs and feasibility studies conducted by exchanges needed to be looked at differently. Exchanges kept on launching commodities, irrespective of their availability or interest of traders and consumers, compelling FMC to rethink on norms.

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