Commodity futures regulator Forward Markets Commission (FMC) will submit a report on the futures ban on four commodities in two weeks and is “confident” the ban on rubber, potato, soyoil and chana will not be extended beyond November 30, FMC Chairman B C Khatua said on sidelines of Pulses Meet-2008 here on Saturday.
“We will be making a submission of our analysis on the suspension to the government in the coming weeks. Our preliminary study indicates that easing inflation especially in food commodities makes the situation favourable to restart futures in these commodities,” he said.
It was “unfortunate” that eight commodity futures were blamed for rising inflation as studies repeatedly show there is no proof to indicate futures trade caused price rise, he said.
Prices of food grains and other primary articles are falling faster than prices of manufactured products, metals, and energy, making the environment positive for ending the suspension, he said.
“The futures suspension drastically hit viability of two of the three existing national commodity exchanges in the country and also dented market sentiment significantly,” Khatua said.
About the issue of levy of central value added tax with government as the regulator, FMC was of the view imposition of the tax leads to “distortion of price discovery and causes cascading effect of taxation on commodities,” he said.
Other issues
“We have spoken to the exchanges as part of our regulator interaction and asked them to review commodity futures that have been illiquid for long periods of time. It makes sense to concentrate on 30-40 commodities than have over 100 commodities with illiquidity in 90,” Khatua said.
Some narrow commodities such as guar and chilli have done exceedingly well while others like thermal coal have struggled to garner volumes, indicating that review is an essential and continuous part of running a commodity exchange.
MCX and National Commodity and Derivatives Exchange have now applied for permission to launch imported thermal coal futures.
FMC has also asked commodity exchanges to take a “more practical and lenient” stand on penalties imposed on some commodity traders and brokers in the initial part of futures trade.
“Some of the mistakes by traders happened due to lack of knowledge and not with an intention to manipulate the market. We are working with exchanges and the parties concerned to try and address the issue,” the chairman said.
Khatua said that already in two cases fines of Rs 3 crore and Rs 4 crore that had been initially levied are set to be rationalised “drastically”.
“Guidelines for setting up commodity exchanges are being discussed with national and regional bourses and will still take some more time before coming into effect,” he said.
Ahmedabad Commodity Exchange in which Kotak Mahindra Bank plans to take a stake has applied to the regulator for recognition as a national exchange.
