Without naming the commodities for which such illegal and parallel futures contracts are conducted and in what places, Mr Vakil said, ``the contracts in the parallel/illegal markets get encouragement as they are operated at virtually no cost, no margin money and no deposits - totally unregulated which gives the operators greater confidence to enter the market with vigor, without any fear.''

Delivering his `theme speech' at a seminar on ``The Role of Futures Trading in Commodities in International Trade' organized by the Bombay Chamber of Commerce & Industry, Mr Vakil said: ``Futures trading is an ideal hedge mechanism for farmers, traders, producers and exporters to hedge themselves of volatility, of price fluctuation. However, the key to success of any exchange is liquidity, which cannot come through participation by hedgers alone but speculators as well. Unfortunately, despite the system and commodity exchanges in place, most futures contracts introduced in recent years on commodity exchanges face acute problem of liquidity, primarily because of the parallel commodity futures market thriving in the country. It is imperative that corrective action by the government is initiated at the earliest".

Further, Mr Vakil said, in the fast changing economy, the important message is: If you are a large producer and consumer in primary commodity and you have to hold your ground in a fiercely competitive trade, you need to put in place a strong market mechanism through trade exchanges at home. ``These exchanges have a serious undue competition from the parallel markets which needs to be curbed by the government and the Forward Markets Commission''.

Speaking on the occassion Mr RN Kar, deputy general manager (exchange control department) Reserve Bank of India said: ``Since permission to hedge in the international commodity exchanges was granted in September 1998, some 55 corporates and other entities have sought and got clearance to hedge on international commodity exchanges. Amongst these entities, base metals top the list, followed by those in the agro produce, bullion and crude and petroleum sector". ``The pace of seeking clearances for hedging on the international complexes may be slow given the novelty of the subject, but surely there is an increasing interest among the corporates to hedge their risks'', Mr Kar said.

According to Mr Kar, though hedging added to the companies' cost of operations, as many as 244 of the Fortune 500 companies said they used the hedging mechanism to hedge their underlying exposure and not for trading, indicating the facility to hedge risks should not be used for speculative activities.

Lastly, Mr Jamal Mecklai, CEO e-Mecklai said: ``Currently, there are various constraints for the corporates to hedge in the overseas markets, one of which is the RBI's relative reluctance of not taking into account the trends in the overseas risk hedging markets. This is because, opportunity loss on any account is a real loss and one has to live with it''.

According to Mr Mecklai, it is important for the corporates and all those associated with the markets to identify the types of risks and where they are coming from. Once identified, it would also be improtant to identify which of these can and can't be managed and hedged''.

While the global players are accustomed to the use of risk management tools in India, we are waking up to the reality of risk management, and currently, the Indian stock markets are discounting the complete lack of knowledge and skills of risk management within the corporates''.