The Hindu Business Line : MCX launches futures trading in crude oil

The Union Minister for Petroleum & Natural Gas, Mr Mani Shankar Aiyar, addressing presspersons along with the Multi Commodity Exchange Managing Director, Mr Jignesh Shah, at the launch of crude oil futures on MCX in the Capital on Wednesday. — Kamal Narang

New Delhi , Feb. 9

LAUNCHING the country's first futures trading in crude oil, the Multi Commodity Exchange (MCX) on Wednesday opened trading at 10 a.m. for US light, sweet benchmark crude West Texas Intermediate.

"Only three monthly contracts would be traded at any given time in lots of 100 barrels, with 50,000 barrels constituting a cargo," the MCX CEO, Ms Anjani Sinha, said at a press conference here.

MCX started off with the first-month April contract and will introduce May and June contracts later.

"This step is crucial for our oil economy and a movement towards developing an Asian oil and oil product market," said the Union Petroleum Minister, Mr Mani Shankar Aiyar, adding that the MCX crude futures would allow oil producers, refiners, trades and consumers to manage their crude oil price risk with greater precision.

"We need to increasingly build transparency into oil markets," he said.

FMC recommends trading in options

The Forward Markets Commission has recommended that options trading be allowed in the market. The market regulator is studying a proposal to have different levels of taxation for hedging and speculative future contracts.

"We are studying the issue at present," the Chairman of the Forward Markets Commission, Mr S. Sundareshan, said when asked whether there would be different levels of taxation for futures contracts for hedging and speculation.

Mr Sundareshan was here at the launch of crude oil trading at the MCX.

Earlier, the Indian Oil Corporation Chairman, Mr M.S. Ramachandran, had suggested that, "the hedging mechanism should be separated from speculation while indulging in futures contract."

On whether the Forward Markets Commission has enough powers to regulate the market forces in commodity futures, Mr Sundareshan said, "The commission has sufficient power under the law." He, however, added that there were gaps that need to be filled in human resources and information technology infrastructure. "We would be inducting 39 top level officials at the commission and are upgrading the technology," he said.

To bring in more transparency in futures trading, the commission has devised a daily monitoring system, which will soon be uploaded onto the Internet.

Trading volume in the multi-commodity exchanges is expected to touch the Rs 5,00,000-crore mark by the end of the current fiscal, up 375 per cent compared to last year.

"Going by the trend till the end of last year, the volume at the three commodity exchanges would touch Rs 5,00,000 crore by March 31, 2005," said Mr Sundareshan.

The decision to allow FIIs, banks and mutual funds to play an active role in commodity trading is being considered, he said and added "a decision in this regard is expected soon."

He also said the National Multi-Commodity Exchange in Ahmedabad would resume futures trading in coffee soon.

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