Plans to collect real-time spot prices of commodities

Our Bureau

Kochi, March 24

The Forward Markets Commission (FMC), which regulates commodity futures trading in the country, has initiated steps to collect real-time spot prices of various commodities to develop an accurate price discovery mechanism.

"The most important problem (in futures trading) today is collection of spot price and final settlement prices. There are different systems followed by the national exchanges," said Mr S. Sundaresan, Chairman, FMC.

Mr Sundaresan said it was necessary to have a nationwide system to collect commodity prices to instil faith in the minds of investors in futures traders.

"This is of extreme importance . All complaints today are because of the issue of spot prices and fixing final settlement prices," he said here at a function organised by the India Pepper and Spice Trade Association.

He said a pilot project was conducted in Gujarat where spot prices were collated from various `mandis' and `talukas' on a real-time basis. Now FMC plans to replicate this model across the country in associations with State governments and other stakeholders.

Mr Sundaresan said with the introduction of a Bill to amend the Forward Contract Regulation Act in the Lok Sabha on March 21, the FMC is hopeful of getting autonomy and more powers during the next financial year itself.

"FMC should become an independent regulator like SEBI (Securities and Exchange Board of India)," he said.

Once it becomes an independent regulator, FMC will have the power to allow options trading in futures and introduce new products such as weather derivatives. It will also regulate various intermediaries in the trade, such as warehouses. The Chairman said he was hopeful that mutual funds and foreign institutional investors (FIIs) would start investing in commodities market in the next fiscal year. The FMC has already allowed mutual funds, FIIs to invest in bullion and crude oil futures at the national commodity exchanges.

The FMC has also recommended that banks be allowed to invest in commodity futures. The RBI has appointed a committee to look into this.

It is expected that the entry of mutual funds, banks and FIIs would give a tremendous boost to India's commodity futures. The country has three national commodity exchanges, NCDEX, MCX and NMCE, and around 20 regional exchanges trading in 93 commodities, which is the highest in the world.

Volumes surge

Mr Sundaresan said trading volumes in commodity futures would surge more three times in the current year from last year. From $128 billion in 2004-05, total volumes up to March 15this year were $420 billion.

"MCX and NCDEX have more volumes than the BSE today," Mr Sundaresan said.

(This article was published in the Business Line print edition dated March 25, 2006)
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