SEBI bans derivatives trade in 7 agri commodities

Suresh P. Iyengar | | Updated on: Dec 20, 2021
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Move seen as a measure to rein in inflation

Capital and commodity markets regulator Securities and Exchange Board of India (SEBI) has suspended futures and options trading for one year in a host of agricultural commodities including chana, mustardseed, crude palm oil, moong, paddy (Basmati), wheat and soyabean and its derivatives.

The suspension of trading in these commodities came into effect on Monday following a communication from the Department of Economic Affairs.

The move comes on the heels of concern over rising inflation — wholesale inflation rose to a record 14.23 per cent in November. The current suspension will unsettle the entire commodity derivatives ecosystem including that of broking firms that will now be left only with metal and energy contracts to trade.

Following the suspension, the MCX banned fresh positions in crude palm oil and allowed only squaring-off in December contracts. Crude palm oil futures turnover on the MCX had fallen 34 per cent last month to ₹5,168 crore against ₹7,888 crore registered in October. India is the largest importer of edible oils with palm oil accounting for two-thirds of imports.

NCDEX also said no fresh positions (including intra-day) will be allowed in futures and options contracts of wheat, chana, rapeseed/mustardseed, soyabean, refined soya oil, soyameal, crude palm oil, moong and NCDEX Soydex listed on the exchange from Monday.

Only squaring of existing positions will be allowed and no new futures and options contracts will be launched till further notice in any of these commodities, it added.

The combined average daily turnover of soya oil, soyabean, rapeseed and chana on the NCDEX was ₹12,700 crore so far in 2021, per the exchange data.

While soyabean prices in the spot market fell 3.5 per cent after suspension of trading in the derivatives segment, market experts feel that the freeze on futures will not resolve the food inflation issue.

Revisiting the past

The commodity derivatives market has been prone to such sudden suspensions of trading in agriculture items ever since it was introduced under the erstwhile Forward Markets Commission (FMC).

Many commodities relisted for trading after the ban never attracted investor interest and exchanges could not succeed in getting the required liquidity in these contracts.

Interestingly, SEBI’s decision comes days after it came out with a consultation paper to allow foreign entities to trade in commodity derivatives and promote the ‘one exchange one commodity’ concept.

Narinder Wadhwa, President, Commodities Participants Association of India, said the agricultural commodities market has been upset with this ban and only narrow commodities are left for trading. “We have expressed our concerns to the Ministry. Market participants are losing faith and have lost heavily due to these bans. It would be very difficult to bring back these institutional players and FPOs (farmers and producer organisations),” he said.

Ajay Kumar, Director, Kedia Commodities, said commodity derivatives were just giving signals on impending demand and supply mismatch and suspension of trading is akin to shooting the messenger for the bad news, he said.


Published on December 20, 2021

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