The Hindu Business Line : FMC to look into issues affecting hedging

Mumbai, July 16 While the Union Government and Reserve Bank of India are wary of allowing mutual funds, banks and institutional investors to participate in the commodity futures markets, the Forward Market Commission (FMC) is of the view that their participation would ensure “scientific” price discovery.

Addressing a meeting of hedgers on Friday, Mr. B. C. Khatua, the FMC Chairman, emphasised said the regulator would like to have a balanced market in which all the stakeholders play their roles for the efficient functioning of the market.

Meet’s objective

The meeting was aimed to provide the hedgers a forum to discuss issues concerning the commodity futures markets and measures that would encourage greater participation in the futures market, said a press release issued by the FMC.

The hedgers said in the absence of institutional participation, hedging trades would impact the futures price.

Mr Khatua assured the participants that FMC would look into all the issues confronting the hedgers and facilitating their participation will be its priority.

Biggest users

Hedgers are supposed to be the biggest users of these markets. In times to come, the efficacy of futures markets will be judged by the level of participation of hedgers, said Mr. Khatua.

He said participation by hedgers in large numbers would ensure more realistic price discovery. It would also convince the stakeholders that even participation of speculators, if in right proportion, is necessary for the efficient functioning of the markets as they provide necessary liquidity and take over the price risk which the hedgers wish to transfer.

Several issues concerning the hedgers, such as limits and criteria for awarding these limits, near month limits, margins and what it should comprise of, the tenure of contracts, cross hedging, facility of delivery, off- market deals, introduction of options, participation by banks and financial institutions, etc were discussed, FMC press release stated.

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