By Anil PatilIndia’s Commodity Futures market is indeed growing by leaps and bounds as evidenced from the growth figures for the past five years since exchange based trading was introduced in the country.
However, to scale up further and achieve global competency levels still more initiatives are required at governmental and regulatory levels. Here is Commodity Market’s 10-point wish list:
• Farmer participation: It is extremely important to increase awareness and participation of farmers in commodity futures. Contracts in agri-commodities can be redesigned keeping in mind the seasonal harvest of the commodity in India. If the contract sizes of some of the contracts are reduced to smaller lots then even the small traders and farmers will find it affordable and suitable to participate in future trading and also hedge.
• Redigning contracts: Commodity contract expiry is an issue and more transparency is required at the outset itself. Small traders who get material which is already on final expiry are unable to trade without going through a long and expensive re-validation process
• Mutual Funds/ Banks: Only large volume players can create liquidity and depth to market, otherwise contracts run the risk of becoming illiquid. Therefore, MF, Banks, FIs may be allowed with suitable exposure limits on open interest, positions and perhaps enhanced margins limits.
• Commodity in Curriculum- It is a fact that policy makers, academics, scientists and laymen do not have a perspective of the working of commodity markets. Frequent awareness programmes have to be conducted. Commodity spot and futures trading can be incorporated in curriculum in humanities, commerce from senior secondary school onwards.
• Forward Markets Commission: You have tremendous powers, but the government should provide autonomy and freedom to act to prevent excessive speculation and manipulation of markets.
• Crop information dissemination: A reliable and viable crop data and forecasting dissemination system should be evolved at the national level. Such data should be published through print, tv and radio on a regular basis as does US Department of Agriculture. Only a well-informed market can ensure efficient price discovery. Even FMC can take an initiative in this regard.
• Ending Bans: It would be better to avoid enforcing bans on futures trading. Instead find out the cause—whether it is excessive speculation or manipulation and try to redress it through position and margin limits.
• Launch options: The market is growing and is already mature to launch options that will increase participation and help in risk mitigation.
• Launch of National Spot Exchange: The nation-wide launch of electronic spot exchange should be speeded up with adequate warehousing and infrastructure facilities. “What is actually needed to help small farmers and traders is to develop an electronic spot market, which can provide a delivery based platform. Futures market cannot provide this facility, because most of the small farmers are more concerned to get good price for their produce, rather than using sophisticated tools of futures for price risk management.”- Anjani Sinha, MD, CEO, National Spot Exchange.
• Smaller Exchanges: Smaller exchanges functioning from towns and cities should not be allowed to stagnate. Enable them to scale up or integrate with major exchanges. With their grassroot level linkages they can provide strength to commodity futures trading in the country.
