Although Indian commodity exchanges announced fresh launches in 2008 with great fanfare, trading data shows most of these contracts have failed to hold trader interest after the initial enthusiasm.
“Too much expansion in a short span across many contracts can lead to existing contracts going illiquid,” Anil Mishra, chief executive officer, National Multi Commodity Exchange (NMCE) said.
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B C Khatua, FMC Chairman
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"FMC has no plans to come out with any new stipulation to check the growing number of illiquid futures contracts"
"We are being patient and are interacting with the market participants to try and meet their specific needs"Joseph Massey, MD, MCX
Mishra also said the propensity to launch similar contracts by rival bourses also tends to fragment market participants even before the contract stabilises, and leads to dip in trade volumes.
R Ramaseshan, managing director and chief executive officer, National Commodity and Derivatives Exchange (NCDEX), has indicated that the exchange has no plans to delist illiquid contracts and will instead focus on redesigning them to ensure better market participation.
India is the only country in the world to have over 100 commodities approved for futures trading. Forward Markets Commission (FMC) Chairman B C Khatua has said the commodity futures regulator has no plans to come out with any new stipulation to check growing number of illiquid futures contracts.
Khatua has repeatedly said new contracts should be given more time to be understood and accepted by the market, but also called on exchanges to be more prudent while launching new commodities.
MCX contracts
Most of the commodity contracts launched since the start of the year have struggled to garner good volumes on MCX after the initial euphoria.
Carbon credit contracts — CFI and certified emissions reductions — platinum, aviation turbine fuel and coriander have witnessed barely any trades over the last few months. CFI contracts launched in January witnessed no trade Wednesday, while CER contracts, which had fared better after launch, traded just 1 lot of 250 CERs compared with the initial average of 200-300 lots a day.
“The market often goes through such phases before it accepts a contract. We are being patient in the commodities and are interacting with market participants to try and meet their specific needs,” said Joseph Massey, managing director and chief executive officer, MCX.
ATF contracts, a niche contract based on requirements of airline and petroleum companies, have not been able to attract market participation.
ATF August contract has witnessed trading in just 4 sessions since August 1. Volumes of trade have ranged between 100-700 barrels a day in the August contract, down sharply from the record volume of 171,800 barrels witnessed on July 7.
“The ATF contract is a unique contract, which also held additional challenges, as very few refiners produce it (ATF), and we are still trying to rope them into utilising the contract for their hedging requirements,” Massey said.
Platinum contract witnessed volumes of just 3 kg on Wednesday, down sharply from the record volume of 430.50 kg on the day of its launch, June 20.
Coriander contract, the bourse’s most recently launched futures contract that began trading on July 28, saw volumes of just 410 tonnes on Wednesday from a record of 7,240 tonnes on August 5.
Meanwhile, MCX announced on Thursday that it will be launching futures trading in red arecanut, garlic and jute sacking within a month
Ncdex futures
December CER contract, launched by NCDEX in April, evoked a very good response, and in fact was the top traded emissions contract in the world in the initial months after its launch. However, volume in the contract started dwindling from mid-July, and in the last two sessions only four lots of 500 CERs each were traded.
“We are in talks with some banks that can provide immediate finance to projects selling their CERs on the exchange platform,” Unupom Kausik, chief business officer, said.
Coriander futures, which commenced trading August 11, witnessed trade in 91 lots of 10 tonnes each at launch, but trade volumes have dwindled to just 15 lots a day in just over a week.
“We don’t know when any particular contract will catch market fancy,” Deviinder Gupta, chief strategy officer, said. Till last year, turmeric contracts were illiquid, but this year they are doing well, he pointed out.
However, crude palm oil futures and gold guinea, or 8 gm gold coin contract, have managed to buck the trend and stay afloat with steady volumes, thanks to strong volumes on overseas bourses like COMEX and Bursa Malaysia. Gold guinea contract has been extensively traded as market players like retail participants, arbitrageurs and importers have been able to harness the unique coin contract for good quality and also hedging of their price risks.
