Govt urges FMC to curb anomaly in sugar futures

The government late on Friday stepped in to rein in the falling sugar prices, directing the Forward Market Commission(FMC) to take adequate measures for rectifying the current anomalies in futures trading.

The matter was taken up during a meeting of agriculture minister Sharad Pawar with FMC chairman S Sundereshan, sources said.

FMC is the regulatory body for futures trading in commodities.

The benchmark M-grade May sugar futures at the National Commodities and Derivatives Exchange NCDEX) on Friday touched a record low of Rs 1,724 and ended at Rs 1,730 per 100 kilograms, Rs 30 lower than the previous close.

"We have taken stock of the situation and FMC has been asked to issue guidelines for corrective measures immediately," an official source said.

Earlier this week, Forward Market Commissionchairman S Sundereshan had ruled out any change in the contract specifications for sugar futures.

Once requisite changes are made in the delivery mechanism by National Commodities and Derivatives Exchange for sugar futures, prices are likely to move up by 100 rupees per 100 kilograms next week, he said.

Currently, the sugar futures are heavily loaded in favour of the seller, as he has the right to exercise option on delivery against a contract, something not available with the buyer, he added. he seller is not obliged to liquidate his open position by buying back even on the last date of the contract.

However, the buyer has to always sell his open position on contract expiry.

"The formulation of the contract should have been done in first place after taking into the account views of various stakeholders including millers, traders and government officials. This was not done," he added.

The sugar futures contract at NCDEX does not maintain equity between the buyer and seller, as happens in exchanges worldwide.

"Neither the buyer should be able to squeeze the seller nor vice versa," he said and added this could be done if delivery is made compulsory on all open positions.

There is concern in the government over the decline in NCDEX sugar futures by 75 rupees per 100 kilgorams in the last three days.

The matter had come up for a discussion last Saturday during a meeting of NCDEX's sugar committee.

The exchange authorities had then contended that no change was possible in the specifications of the current contracts but industry associations feel if left untouched, it could lead to a collapse in the market.

Meanwhile, traders argue that as the futures prices are quoting low, buyers are also keeping away from the physical market hoping for a similar fall in the spot trade as well.