The Solvent Extractors’ Association (SEA) has asked the government to raise margins and impose more curbs to prevent the misuse of futures trading in oilseed contracts.
In a pre-budget memorandum to the finance ministry and the consumer affairs secretary (who regulates futures trade), SEA asked, “the margin money required for oilseeds futures be enhanced to a level that will discourage pure speculative activity.”
Currently, only soybean and mustard seed are traded on Indian bourses. Though commodity futures trade is a good tool for price discovery and risk management through hedging, “when demand is far in excess of supply of a commodity, there is always a risk of futures trade being used more for speculation than for its real purpose,” Ashok Sethia, president, SEA said.
To curb this, oilseeds contracts should be restricted to one month, against six-monthly contracts currently, he said. “Existing futures contracts for the next six months should be squared off on the date of settlement of next month contract,” Sethia added.
SEA has also said a percentage of the total traded volume by any trader be compulsorily settled by delivery so that it corresponds to prices in the physical market.
An industry official had earlier said that some multinational and local trading companies that own soybean crushing plants had been stocking up the oilseed, and later selling at a higher price.
These elements were using futures trade to build big positions and manipulate prices even at the time of harvesting, the official said.
