By Suresh Unnithan
and its regulator, the Forward Markets Commission (FMC). This year the market created an all-time record in terms of turnover and the much awaited Forward Contracts (Regulation) Amendment Bill 2010, proposed to provide autonomy to the commodity market watchdog, was introduced in the Parliament a few days ago, during its interrupted winter session.
As per the data released by FMC the cumulative turnover of the commodity market has register an impressive 50 per cent jump to a record Rs. 1,05,00,000 crore this year from Rs. 70,00,000 crore last year.
As per the regulator’s data all the commodity bourses in the country, except the Ahmedabad based NMCE, recorded a robust growth.
Till November, the combined turnover of the five national and 18 regional commodity exchanges stood at over Rs. 94,94,721 crore (Rs. 94.94 trillion).
The country’s largest commodity bourse, MCX, saw its turnover surge by 48 per cent to Rs. 78,95,921 crore while that of leading agri-commodity bourse NCDEX improved by 39 per cent to Rs. 9,73,206 crore during January-November, 2010.
New entrant Indian Commodity Exchange (ICEX) clocked business of Rs. 3,78,006 crore (Rs. 3,780 billion), which was higher than the turnover of the oldest national bourse, NMCE. NMCE’s turnover rose by just 6 per cent to Rs. 1,80,727 crore from Rs. 1,70,419 crore in the given period.
Much of the credit to the mindboggling turnover of the commodity futures market has to be attributed not just to the extending bullish trend alone. The earnest efforts of the regulator and its ever agile Chairman, B C Khatua played a proactive role in developing the commodity market in general and its futures segment in particular and helped it grow a record high.
The relentless efforts of the Commissions to infuse confidence among the stakeholders of the market are commendable. Lack of awareness of the futures trade lead the vulnerable stake holders succumb to the rumors spread against the progressing market.
To create understanding of the market and its benefits to the primary population, the growers, farmers, traders and consumers, the senior officials of the Commission conducted awareness sessions in association with local groups and stakeholders. Through an effective communication strategy FMC could convince the participants on the benefits of the futures market and clear off their misgivings.
As the awareness spread, the participation improved and the volume surged new heights. But the knowledge of commodity futures trading is still to reach those directly involved in trading like dealers handling the broking terminals. They need to be trained on all aspects of futures market and not just the techniques of terminal operations.
The opposition to the futures market is basically due to ignorance, many feel. Even the hardcore critics of the futures trading admit that about 1 million rubber farmers in Kerala are largely benefitted by the futures trading in natural rubber. Futures trading have made the market transparent and anyone can have a basic understanding of the trend of the price movements if they gain a proper knowledge of the trading pattern. They have now understood that futures trading are price discovery mechanism which helps them to hedge their risk and it is being monitored by the regulator to ward off any manipulation. To make the prices reach real beneficiaries the Commission has also installed price ticker boards at popular points to display commodity prices, both futures and spot, live.
Despite these progressive plans the Commission is facing certain hurdles. With the sudden surge in the market and more commodity exchanges coming into operation the labor load of the regulator is escalating. It has the critical responsibility of protecting the market from manipulations. To keep at bay the manipulative forces the regulator needs proper punitive powers and manpower.
As of now FM has permitted futures trading in 115 commodities through 5 national exchanges-. Multi Commodity Exchange, Mumbai; National Commodity and Derivatives Exchange, Mumbai National Multi Commodity Exchange, Ahmedabad, Indian Commodity Exchange Limited (ICEX), Gurgaon and the recently upgraded regional Exchange Ahmedabad Commodity Exchange now known as ACE Derivatives and Commodity Exchange Ltd. Besides, there are 16 regional exchanges. The cumulative value of trade from 1st April, 2010 up to 15th November 2010 for the financial year 2010-11 was Rs.67,11,203.18 crore.
However, the Commission has taken a range of measures to boosting investors’ confidence and restricts likely manipulations. Not only did the FMC disband the sub-broker system this year, it also amended the shareholding norms for commodity exchanges, making it mandatory for the exchanges to incorporate government firms on their respective boards with a stake of up to 26 per cent.
The Regulator had also made it mandatory for the initial promoters to cap their stake in the bourses at a maximum of 26 per cent, as against 40 per cent earlier, while also regulating cross-holding in commodity and stock exchanges.
Of late FMC has made clear that the Commission will not allow permission for new contracts without a satisfactory linkage with the spot market.
With the Forward Contracts (Regulation) Amendment Bill, 2010 likely to get through in Parliament in the coming budget session the Regulator hopes to draw more independent powers similar to the security market regulator SEBI.
The Forward Contract Regulation Amendment Bill, 1998 was passed by Rajya Sabha on December 15, 2003. However, the Bill could not be passed by the Lok Sabha due to its dissolution in 2004. The Bill was again introduced in the Lok Sabha on 21.03.2006. Further it was referred to the concerned Parliamentary Standing Committee. The Committee submitted its Report on 19.12.2006. After examination of recommendations of the Committee, a Note for Cabinet for official amendments in the Forward Contracts Regulation (Amendments) Bill, 2006 was sent to the Cabinet Secretariat for consideration. The Cabinet in its meeting held on 3-5-2007 advised to carry out wider consultations with all stakeholders including the political parties and submit the revised note thereafter. After compliance of the instructions of the Cabinet a fresh Cabinet Note was submitted on 11.01.2008. The Forward Contracts (Regulation) Amendment Ordinance, 2008 was promulgated on 31.1.2008. In order to replace the said Ordinance, a fresh Bill, The Forward Contracts (Regulation) Amendment Bill 2008 was introduced in Lok Sabha on 13.03.2008. The earlier FCR (A) Bill 2006 which was pending in the Lok Sabha, was withdrawn simultaneously. However, the bill lapsed.
The Union Cabinet has approved amendments to the Forward Contracts (Regulation) Act 1952 by introducing the Forward Contracts (Regulation) Amendment Bill, 2010 in the Parliament on 16.09.2010 and the Bill was on 06.12.2010.
The safe sailing of the Bill will ensure more powers to the market regulator. Recently the Commission has expressed its concern on the shortage of manpower. Many of its senior and middle level officers are on deputation from different Government organizations and most of them are on completion of their tenure. During the last one year more than a dozen officers had repatriated, but not even a third of the number was replaced. To worsen the situation further, in the coming months more middle level officers from the Commission are likely to go back to their parent departments. This is expected to happen when some of the crucial positions in the commission are lying vacant.
Once the Bill is through the Commission will not need to bank on deputed manpower. It can have its own.
In short the Bill will facilitate more powers to the Commission and proper enforcement of the power will strengthen the commodity market further and this will in turn enhance the national economy.