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Suresh P. Iyengar
M.R. Subramani

`Traders have to obtain licence for forward contracts'

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Mumbai/Chennai Feb. 13 A communication from the Rubber Board to the commodity exchanges saying traders need to obtain licence for trading in the commodity's futures has led to differences of opinion between Government authorities and those who manage futures.

The Rubber Board last week sent the communication through the Forward Markets Commission (FMC), under which the commodity exchanges function, saying no person could sell or buy rubber except in accordance with the licence issued by it.

Physical Delivery

The commodity exchanges have interpreted that the board's directive will come into play only when physical delivery of rubber takes place. When contacted, the NCDEX Managing Director, Mr P.H. Ravikumar, said: "The licensing part comes into effect only during delivery settlement. It is much like Central value added tax and other such levy which come into force during physical settlement."

"The Rubber Board has no authority over trading on commodity exchanges. It is only the FMC which has control over our functioning," a commodity exchange official, who did not wish to be identified, said. When contacted, the Director (Licensing and Excise Duty) of the Rubber Board, Mr T.V. Muthuswamy, said whoever took position in the rubber counter in the forward market would have to obtain a licence.

High Price

"Traders need licence even to trade in the futures market as far as rubber is concerned. This is since they enter into some sort of contract to either buy or sell," he said. According to industry sources, there is no provision for acquiring licence under the Rubber Act, 1947 to trade in forward contracts.

However, the Rubber Board has sent the communication pointing out to Section 14 of the same Act.

Trade sources say even those participating in futures trade should take licence. "Futures trading is the reason for rubber prices ruling high currently, when fundamentals are against it. We feel the futures market is being manipulated and hence such checks and balances are required," they say.

Industry sources say the Centre may have a role in the communication being sent to the commodity exchanges. "There is a general feeling that the prices are unreasonably high. Therefore, the Centre would have been forced by the user industries to act," they say.

Reasonable Price

They also point out to a reported statement by one of the officials coming under the Commerce Ministry that Rs 80 a kg is a reasonable price for RSS 4 grade rubber.

On Tuesday, RSS 4 was quoted at Rs 97.50 a kg, down from over Rs 100 two weeks ago.

"Do you think the Rubber Board would have sent the communication without the Centre's approval?" the industry sources wonder.

Official sources said the board had been forced to come out with the communication as the volume of trade was increasing. "There is too much of activity in the rubber futures and under such circumstances, the board has been drawn into action," the sources said.

With a record 82,000 tonnes of rubber likely to be imported and projections of a high carryover stock, the rubber user industry is of the view that fundamentally, rubber prices should not be at the higher levels being witnessed currently.

But grower representatives see nothing wrong in the current price trend and point out to the general trend in the global market. Prices in the Bangkok market for RSS 3, an equivalent to domestic RSS 4, are currently ruling over Rs 109 a kg.

More Stories on : Commodity Exchanges | Rubber

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