The Hindu Business Line : Bourses await FMC nod to resume futures in 4 commodities

Mumbai, Dec. 1 The ban on futures trading in four agriculture commodities – soy oil, channa, potato and rubber – lapsed on Monday. Commodity market regulator, Forwards Markets Commission (FMC), had banned trading in the four commodities in May for a period of four months which was later extended till November-end.

Mr Rajiv Agarwal, Member, FMC, said the ban order had lapsed and certain procedures have to be followed before approving the new contract specification submitted by the exchanges.

National exchanges – NCDEX and MCX – expect to restart trading soon after receiving the contract approval from FMC.

Mr Unopam Kaushik, Chief Business Officer, NCDEX, said: “We are waiting for FMC to approve our contract specification. We may restart trading in next two to three days.” NCDEX has not made any changes in contract structure.

The decision to lift the seven-month ban of futures trading comes at a time when prices of most of the agriculture commodities have dipped sharply in the last few months.

Internationally, commodities markets are poised for the biggest drop in 25 years as the US, UK, Japan and 15 European nations slip into a recession. Soy oil prices in India are benchmarked to international markets.

SOYABEAN GAINS

In anticipation of the government decision, soyabean prices have already gained 15 per cent to Rs 1,739 a quintal in the last fortnight, particularly when it was the peak arrival season.

Mr Joseph Massey, Managing Director, MCX, said the required infrastructure to restart trading were already in place. However, it will take additional measures to regain investor interest.

MCX product development team will be holding discussions with the trade to find out any modification is required in the contract design. Though industry has welcomed the Government decision, it feels many other trade restrictions on exports and storage limits need to be eased before the full benefit could be fully reaped.

STORAGE LIMITS

Mr B.V. Mehta, Executive Director, Solvent Extractors’ Association of India, said the Government should have simultaneously removed the storage limits which was also imposed at the time was inflation unreasonably high.

In Maharashtra, soyabean processors can hold only one-sixth of their last year’s crushing capacity, while it was one-eight in Andhra Pradesh and 200 tonnes in Karnataka.

“There are a few soyabean processing plants in Karnataka with a crushing capacity of 500 tonnes a day,” he added.

Meanwhile, Mr N. Radhakrishnan of the Cochin Rubber Merchants Association wondered if the FMC had met with the demands of the rubber growers, trade and recommendations of the Rubber Board.

“There are three aspects that have worried us over futures trading. Also, is there any change in the situation from May, when futures were banned,” he asked.

LOWER PRICES

First among the aspects worrying the growers, trade and industry is growers getting prices lower than international rates. “Ever since futures were launched, our growers have been getting prices lower than what prevails in the international market. Before that for over 25 years, growers had got prices higher than global market rates. Statistics with the Rubber Board stand testimony to our views,” he said.

VOLATILITY

The other concern is volatility. “There is 4-9 per cent swing in futures prices. When the margins are between 0.5 per cent and one per cent, we cannot afford such volatility in the prices,” Mr Radhakrishnan said.

The last worry is that rubber trading is done under the purview of the Rubber Act, passed by Parliament. “FMC does not have overriding powers over the Act. All those trading in rubber should have licence and registration. Is the FMC insisting on it? If they don’t have licence, are they at least registered,” he asked.

“Speculators should not be allowed to wreak havoc. Hardly one per cent of the growers and industry and hardly two per cent of the rubber trade takes part in the futures. The question is for whom do the rubber futures function?” Mr Radhakrishnan wondered.

(With additional inputs from M.R. Subramani, Chennai)