FMC lifts 2-year ban on futures trade in wheat

Mumbai, New Delhi: In a significant development on the eve of the general election results, commodities regulator Forward Markets Commission (FMC) has overturned a major decision of the outgoing UPA government and allowed exchanges to resume futures trade in wheat, one of the country’s main foodgrains. “The National Commodity Exchange can now apply afresh for new contracts. Once they do so, we will grant permission within two or three days,” FMC chairman BC Khatua told FE.
The FMC is believed to have taken the decision to lift the futures trade ban last month, but its announcement was delayed due to imposition of the model code of conduct. It also comes ahead of the government’s move, probably next week, to ease a more than two-year ban on wheat exports.
The outgoing UPA government banned futures trade in wheat, rice, tur and urad in March 2007 under pressure from its then communist allies, who blamed the futures market for a spike in retail prices of food commodities.
However, a high-level committee constituted under the chairmanship of Planning Commission member Abhijit Sen in 2008 to study the impact of futures trading on spot prices failed to identify any direct correlation between the two. Instead, the panel recommended enlarging the futures trade as volumes for most agricultural commodities was relatively low compared to international norms.
Notwithstanding the conclusions made in the Sen report, the government in May 2008 went ahead and suspended futures trade in potato, rubber, refined soy oil and chana (chikpea) for four months to curb the spurt in retail prices. The suspension was later extended for another two months, after which it was allowed to lapse as prices of all four commodities showed a declining trend.
Friday’s decision to lift the futures ban paves the way for the resumption of trading in one of highest volume grossing commodities on the exchanges. Of the three national bourses, wheat was largely traded on the National Commodity & Derivatives Exchange (NCDEX), the country’s largest agriculture exchange.
Armed with the FMC order, NCDEX immediately submitted its request for new wheat contracts for trading. Exchange sources said it would be ‘compulsory contracts’ and trading could resume as early as next month.
MCX is also expected to file for resumption of trading in wheat futures on Monday and hopes to start trading by Tuesday. Asked about the lifting of the trading ban, MCX CEO & MD Joseph Massey said, “This is a positive development, which will benefit farmers as well as industry.”
“The price of a commodity depends on fundamentals and, therefore, there was no justification in continuing with the ban,” said Debjyoti Chatterjee, associate vice-president at Mape Admisi Commodities, a Mumbai-based brokerage firm.
Comfortable wheat stocks and also a massive surge in procurement during the current harvest season that started in April had also made continuing the ban redundant. India’s wheat production in 2007-08 is estimated to be around 78 million tonne (mt).
In 2008-09, according to the government’s third advanced estimate, wheat output is estimated to be more than 77 mt. Stocks on April 1 are estimated to more than 14 mt, almost 9 mt more than the buffer requirement. (Source: Financial Express)

FMC raps NCDEX on fall in SGF, violation of rules

The Forward Markets Commission (FMC) has taken a serious note of the mismanagement of financial affairs and diversion of funds made by the National Commodity & Derivatives Exchange Ltd (NCDEX) in the dealing and utilisation of the Settlement Guarantee Fund (SGF) which has violated regulatory rules.
The regulator also noted that NCDEX’s SGF had slipped below the minimum amount of Rs 5 crore as prescribed in the exchange’s own bylaws. The fund size was reduced to just Rs 5.05 lakh as on December 31 from Rs 24.87 crore between March 2004 and March 2006.
In a 20-page document released by FMC on the transaction charges levied by the exchange, it has examined the issue of reduced transaction charges and said in its finding that transaction charges may make only marginal difference in the choice of the exchange as far as market participation is concerned. The drastic cut in transaction charges cannot by itself bring an substantial jump in the volumes as expected by the exchange.
The commission has also rejected the two likely scenarios given by the exchange that could increase the volume of the exchange. Firstly, that the exchange was able to attract new clients who were so far not present in the market. Secondly, that the exchange was able to attract clients of other exchanges in the evening hours which would result in an increase of 30%-35% of the average daily trade value, i.e. 200% growth in turnover of the exchange in the evening hours.
“First of all, expecting a 200% rise in volume only on the strength of reduced transaction charges is highly impractical. Secondly, it would be incorrect to presume that such a potential shift in volume would go without any retaliatory action from competitors,” said the regulator. (source: financial express)