The Hindu Business Line : ‘FMC will be selective in permitting new products’

Mumbai, Aug. 28 Commodity futures exchanges should do their homework first before seeking permission for listing new commodities, says Mr B.C. Khatua, Chairman, Forward Markets Commission. “We will also keep a tab on the number of commodities cleared by us which are pending launch by the exchanges,” said Mr Khatua in a freewheeling chat with Business Line.

Out of 70-odd commodities listed on the exchanges only 10-15 are traded regularly. Do you have plans to de-list the illiquid commodities?

We want the exchanges to improve them. The contract design needs to be tweaked to suit buyer and seller needs. Good marketing is the key. In future, we will be more selective is giving permission. The exchanges have to convince us with data that trading on a particular product is needed.

But permission was given to the existing illiquid contracts after research was done by the exchanges.

It shows that the exchange research on these illiquid contracts was defective and their approach has to change. We will not tell the exchanges to delist these commodities. It is up to them. Also, as such there is no cap on the number of commodities to be traded.

What do you think is the reason for the recent drop in turnover on the exchanges?

Commodity futures turnover has dropped seven – eight per cent between April-July. There have been issues over quality in agri-commodities. Logistic problems like shortage of warehousing are also a cause for concern. The exchanges have to address these issues. The market too has turned very volatile due to lack of genuine hedgers, but of late a few corporates have shown interest.

You had called for a report on the recent jeera futures backwardation (futures lower than spot price). Has the exchange submitted it?

We are still waiting for the report. Our understanding is that traders felt that the jeera quality in the exchange warehouses was inferior. That is why they did not want to pay a premium over the spot prices.

Don’t you think quality issues will affect the standing of the exchanges?

Definitely, and the exchanges are aware of it. They are taking corrective measures. Traders buy from the exchange hoping that the quality is assured. Anyhow, quality complaints should be dealt with firmly. Moreover, lack of qualified assayers compounds the problem.

Any plans to revive regional exchanges?

We have asked the regional exchanges to submit a report on how they can turn-around their businesses and the kind of help they require. We are open to financial assistance if the intentions are right. Our understanding is that they require technical support. But, we want to hear from them out before deciding on further steps.

Will commodity spot exchange planned by national exchanges come under FMC purview?

State governments control commodity spot trading. The spot exchange on an electronic platform planned by the exchanges is at the state level. Once it is expanded to a national level platform, we can regulate the trading aspect and the state the delivery. Anyway, this warrants a constitutional change and consensus to put spot trading on the concurrent list.

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‘FMC will be selective in permitting new products’