‘Controlling price is not forward markets panel's function'

The role of the Forward Markets Commission (FMC) is not to control rise in prices of agricultural produce traded on various commodity exchanges.

“FMC is not concerned about controlling price (of agricultural commodities). Its role is to ensure price discovery and managing price risk in a smooth manner,” said Mr M. Mathisekaran, Member of the commission.

The member of the FMC, which supervises the functioning of commodity exchanges in the country, was addressing an “Investor Awareness and Education Seminar on Agri-Business and Commodities” organised by The Hindu Business Line . The event was held in association with the FMC and the National Commodities and Derivatives Exchange (NCDEX).

Stating that speculation was an essential part of commodities trading, he said that at the same time, it should not lead to unscrupulous behaviour.

“We come up with various regulatory measures to check such behaviour. Unfortunately, sometime the measures failed to yield result,” Mr Mathisekaran said.

The measures include limits on open positions, imposing higher margin and daily cap on upward or downward movement of prices.

Lack of awareness of commodities market was leading to more complaints on price movements but the FMC lacked powers like the Securities and Exchanges Board of India. He, in particular, referred to the hue and cry raised over the surge in prices of menthe oil and the guar complex that are considered industrial commodities.

Mr Mathisekharan said that one of the drawbacks of forward contracts in the country was that their definition was negative. “They are referred as the ones not for ready delivery. Delivery within 11 days is considered ready delivery and beyond that it is forward contract,” he said.

The value of trade in commodity futures had increased to Rs 180 lakh crore during 2011-12 from Rs 66,000 crore in 2002-03. During the same period, the number of traders in the commodities market increased from 8,000 to 14 lakh.

Though agricultural commodities gained in 2011, trading is still at a nascent stage. There are numerous bottlenecks in commodities trading, while the contract size in major commodities are still too huge for small traders to participate, Mr Mathisekharan said.

Lack of infrastructure, warehouses, modern trading equipment and reaching across important centres in the country were other drawbacks, he said.

Mr K. Ananda Kumar, Chief - Corporate Services of NCDEX, said that commodities trading was growing faster than equity. “But most people do not know anything beyond gold and silver,” he said, adding that the market was still growing despite various curbs imposed on it.

He said that in order to bring transparency in spot trading, the NCDEX had joined hands with the FMC to put up boards displaying various agricultural produce prices in many parts of the country.

Commodities could be a portfolio diversion for investors, he said.

Mr D. Sampath Kumar, Editor of The Hindu Business Line , in his address, said the awareness programme was first of a series of programme planned by the organisation.

He said that the volume of turnover in the commodities market was 70 per cent of the turnover in the equities market.

Mr G. Chandrashekhar of The Hindu Business Line said that rising population and income besides the current low level of consumption would drive commodities market to a higher level.

Commodities are a new class of asset with investment in the market being $450 billion out of the total $50 trillion investments in various other markets. “If a small portion of this investment is shifted to the commodities market, there will be a significant change,” he said.

mrsubramani@thehindu.co.in

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