The Hindu Business Line : Derivative contracts

This is with reference to the editorial “Coming clean on contracts” (Business Line, March 13). A pragmatic and forthright view has been taken on futures contracts. The The financial history of crashes and scandals shows that individual greed festooned with obsession to make more and more money in disregard of the minimum caution and market discipline is the real cause behind such crises.

Companies must be transparent with their “policy with regard to entering into derivative contracts”. This raises the critical issue of right information to investors to enable them to take right decisions about hedging, contracts etc, and a proper institutional mechanism that aids them to do.

In this regard, commodity exchanges such as MCX and NCDEX have been in the forefront in educating investors on the pitfalls involved in playing on commodity exchanges.

Despite this, if a few individuals/institutions burn their fingers, it is immature for the government to ban futures trading in essential commodities etc on the fictive ground of price rise. Such knee-jerk reactions triggered by a baseless fear of speculation have an adverse fallout on the wider economy in terms of loss of income and jobs.

In fact, last year, when crude oil prices rose in the US, the US government gave more teeth to the regulatory body — Commodity Futures Trading Commission ( CFTC), instead of banning futures trading in crude oil. It is downright churlish to throw the basket because of a few bad eggs.

Now, the time has come for the government to take a progressive view of the derivatives trading in commodities, especially when the trend is for setting up more markets in different asset categories and widening and deepening them by floating more and more trading instruments.

Nausheen Shaikh Amrita Nanavaty

More Stories on : Letters | Derivatives Markets

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Sagging growth and softer rates

Budget: The missing long-term investment

Path-breaking Budget on an inclusive route

The issues and the contestants

The city that moves on two wheels

Question waiting for an answer

Derivative contracts