The Hindu Business Line : Futures ban draws flak

The sudden ban on forward trading of tur and urad has attracted severe criticism from commodity market participants. The brokers and fund managers are unanimous that such action will disinterest risk hedgers and arbitrageurs to enter the Indian agri-commodity futures market and will promote speculative transactions - better known as `dibba trade' - by smaller players.

Incidentally, the ban had hit the arbitrageurs the most. Broking sources say that since tur futures prices were substantially higher than the spot market prices there was substantial arbitrage interest in the commodity. Tur February contract closed at Rs 2,281 on Tuesday as against a spot market price of Rs 2,337.

The ban, however, changed the rules of the game and arbitrageurs (on the buy side) will now have to take delivery of tur at a higher price and liquidate the stock at the spot market at a lower price. According to broking community, chances are also high that the stocks will be liquidated at an even lower price compared to the ruling spot rates.

While NCDEX official sources feel that the total value involved in such arbitraging will be negligible compared to the total trading volume, brokers are unanimous that such incidents will not go down well with big market participants.

"The total value involved in such transactions will not be more than 3,996 tonnes warehouse stock. However, there were cases in the past where we have helped investors to liquidate their stock," said an NCDEX official, adding that they are following the developments closely and may come to the aid of arbitrageurs, if need be.

Such assurances, however, failed to soften the mood of commodity brokers who had a hard time in convincing their clients throughout the day.

"It is not clear why the Government had enforced such a drastic measure like de-listing two contracts," said Mr Kishore Narne, Head-Commodity Research, Anand Rathi group.

According to him, the historical data of the last few years prove that tur was ruling at its normal trading range and urad was much lower than its last year's high of Rs 3,800. Urad February contract closed at Rs 3,234 on Tuesday, lower than the spot price of Rs 3,550 (Akola).

"Given the fact that the futures price of urad is a clear Rs 300 lower than the physical market it is hard to conclude that forward market was fuelling price rise," said a broker.

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