The Hindu Business Line : Advisory services banned in commodity derivatives

Abrupt end
`Speculation unlikely to die down following ban'
Three months ago, FMC had issued draft norms
Plan to launch electronic market surveillance system

Mumbai , Dec 6

The Forward Markets Commission (FMC) has banned members from offering clients portfolio advisory, portfolio management and other services in the commodity derivative markets.

"The FMC had noticed that some registered members of the exchanges are involved in advisory services to clients for investment in commodities futures contracts. FMC has not formulated any guidelines for investment advisory services by any entity," said a release.

Interestingly, three months ago the regulator had issued draft guidelines to exchanges on portfolio advisory services.

"The regulator's move is shocking as we were expecting detailed guidelines on advisory services," said Mr Mohan Natarajan, Director of Kotak Commodities.

Some players do not believe that portfolio services are boosting volumes on the exchanges.

"Investors are bound to invest in commodities even if there are no advisory or portfolio management services," said Mr Sushil Sinha, Regional Head of Karvy Commodities. "It will be in the interest of investors to allow these services after setting up guidelines."

Speculation is unlikely to die down following the ban, said Mr Ashish Shukla, a trader on the NCDEX.

Turnover in many commodities has been escalating, forcing the FMC to impose additional margins and cut open interest positions.

Guarseed futures turnover on the NCDEX moved up from Rs 717 crore on November 1 to a high of Rs 1,089 crore today.

Prices of guarseed futures on NCDEX have inched up from Rs 1,977 a quintal on November 1 to Rs 2,132.

Some of these price movements are seasonal, traders said.

At the same time, the regulator is planning to launch an integrated electronic market surveillance system on the lines of the SEBI.

"We are always examining the possibility of tightening the surveillance mechanism in commodity trading. It is on the top on our agenda and will be taken up in due course," said Mr Rajeev Agarwal, Member, FMC.

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