Extension of ban in agri commodities trading hits investors confidence, says CPAI President 

It has been a very eventful year for commodity derivatives exchanges. While trading in the metal and energy pack was robust, agriculture commodities had to go through rough patch. Narinder Wadhwa, National President, Commodity Participant Association of India spoke to businessline on the year that was. Excerpts:

MCX implemented CDP during last quarter of 2023. The migration of this kind in running markets is first of its kind in any jurisdictions. The new system has stabilised and there is no major issue. Meanwhile, process of further improvement will continue. The exchange also witnessed record volumes during 2023 because of vibrant options markets on platform.

However, agri commodities market has gone for a toss with the ban of key commodities and this had hit NCDEX hard. The extension of ban on key agriculture commodities has left only narrow commodities for trading. The basic purpose of exchanges was to drive price discovery process and hedge the risk involved in commodity trading. The very purpose of exchanges will be forfeited if major agriculture commodities are banned. We have shown our concerns to the Ministry.

On the contrary, a robust and well-functioning commodities derivatives market can be an important component of India’s efforts to achieve a $5-trillion economy. By providing greater price transparency, risk management tools, and investment opportunities, these markets can help to stimulate growth, reduce volatility, and enhance the efficiency of India’s overall economy. Confidence is definitely shaken in agriculture commodities because of recent withdrawals of contracts abruptly and extension of ban on trading.

All participants are losing their faith in this market and lost heavily due to these bans. It would be very difficult to bring the institutional players and FPOs (farmers and producer organisations) back, if this ban on commodities continues. This will also hurt foreign portfolio investor sentiment, as they need consistency in policy and once such decisions are given without any prior notice. Overall turnover will be impacted if this abrupt banning of contracts continues. It is very difficult to bring back hedgers and traders in ecosystem once the confidence is lost due to actions like ban on trading are taken. There are number of empirical studies in the past which have shown that derivatives do not push spot prices generally.

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