Commodity futures, derivatives market convergence advocagted

New Delhi, Feb 25 | Updated: Feb 26 2005, 05:41am hrs
The Economic Survey called for a convergence between commodity futures markets and other derivatives market for economies of scale.

Commodity futures market clocked trading volume of Rs 170,720 crore. This works out to roughly one-third of the government bond market and one-tenth of exchange trading in equity market, said the Survey.

Suggesting convergence of markets the Survey said that it would help in utilisation of capital-investments and institution building.

Commodity futures market is the third component of organised trading of standardised products. The operations of three new national multi-commodity exchanges like National Commodity Derivatives Exchange (NCDEX), Multi Commodity Exchange (MCX) and National Multi Commodity Exchange (NMCE) boosted the prospects of commodity futures.

The Survey has suggested: Organised retail formats will help in upgrading the quality of products, establishing efficient supply chains from farm to market and generating greater employment.

It has also suggested that financial institutions should be encouraged not only to benefit industry, but also agriculture.

It said : Subject to prudential norms, the participation of pension funds and contractual saving schemes in equity and long-term debt markets needs to be encouraged not only to benefit industry, agriculture and infrastructure, but also allow the small savers to cash in on the handsome returns that such markets are likely to yeild in the medium term.

About 72 commodities, including many agro commodities are allowed for futures trading. Government claims that introduction of futures trading will help farmers to get remunerative prices through market intelligence. Futures trading will also stabilise prices.