The move to investigate futures market in the US has definitely dented enthusiasm as this market is extremely well-developed, having existed for decades, unlike the Indian commodity market that resumed in 2003 after a 40-year gap.
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| Market participants say that such measures dampen sentiments and tend to ignore underlying fundamental factors like demand-supply mismatch that play a role in fuelling prices.
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| On May 7, following government directives, the FMC had suspended futures trade in chana, soyoil, rubber, and potato for four months to "dampen inflationary price expectation in the future", FMC Chairman B C Khatua had said. At the start of 2007, FMC had suspended futures trade in wheat, rice, tur, and urad.
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| India's headline inflation rose to a 45-month high of 8.24 per cent in the week ended May 24, sharply higher than 5.15 per cent in the same week a year ago. Inflation has risen sharply since the start of this year when it was pegged at 3.79 per cent in the first week of January.
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| Most of the price rise has been attributed to rising food prices, along with the surge in crude oil futures. Commodity market players globally have noted that suspension of futures trade is a negative move as there is no evidence linking it to the price rise.
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| Also, need for commodity futures by traders is felt more when markets are volatile as there is a high need to mitigate price risks, they said.
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| "Pre-presidential election pressure on the regulator may lead it to take populist measures like imposing curbs on futures trade and its participants. However, such moves will not bring prices down as they are not the cause behind the rise in prices," an analyst with a Delhi-based brokerage said.
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| Analysts felt the CFTC may be under pressure to show that it is "taking action" against the sharp rise in commodity prices.
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| Over the last two weeks, the CFTC has been probing speculative activity in oil and cotton futures trade amid talk of manipulation or fraud in the doubling of oil prices in the last year.
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| Also, the regulator is studying alleged irregularities into an unwarranted rise in cotton futures prices in February-March, when surplus stocks were available in the market.
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| US lawmakers have exerted pressure on CFTC to crack down on speculators who they hold responsible for pushing energy prices to record levels.
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| CFTC is expected to start acquiring more information about index funds and, more significantly, about clients on the other side of the unregulated swaps deals that are being hedged on the regulated futures exchanges.
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| "Even when oil prices were at $10 a barrel, hedge funds were trading in the commodity so to claim that oil's rise above $135 is because of funds is ignoring the demand-supply side issues," Bhart said.
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| The move from the regulators comes in the wake of pressure from governments, policymakers, and consumers who have been hit the most by rising commodity prices, especially crude oil. Comments from leading market players and key organisations have also hit sentiment adversely.
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| Global investor George Soros told the US Senate on Jun 3, that speculation and high investments by commodity index funds were "reinforcing the upward pressure on (oil) prices".
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| He felt there would be a price crash if heavy investments into commodity index funds fell.
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| But, "while focusing on speculative excesses, we should not lose sight of these underlying issues (supply side problems)," Soros said.
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| Austrian Finance Minister Wilhelm Molterer has said that he will propose a Europe-wide tax on commodities speculation as people across the continent protest against higher fuel and food prices.
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| Organisation of Petroleum Exporting Countries Secretary General Abdalla Salem El-Badri has repeatedly said that excessive speculation in oil futures and not supply problems were responsible for record high oil prices. |
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