FIs, MFs may push commodity bourses

Written by P Vinod Kumar | Chennai, Jan 26 | Updated: Jan 27 2008, 06:49am hrs
Domestic financial institutions (FIs), mutual funds (MFs) and commercial banks are beaming with hopes that the amendment of Banking Regulation Act, 1949 will open new vistas for them in the booming commodities futures business.

Minister of state for food processing industries Subodh Kant Sahay recently said that the government would amend the Act to remove commodities from the negative lista move that would allow MFs and FIs to participate in the commodity markets.

Analysts say the step will also give a leg up to the yet-to-be launched commodity options and index futures by key exchanges. Major exchanges such as Multi Commodity Exchange of India (MCX) has already announced their plans to launch trading in options and index futures soon. They say allowing financial institutions and banks in commodity market, along with introducing of options and index futures, would take the volumes in the market through the roof, as fund managers of the institutions and banks, taking position in futures market, could mitigate their risk by hedging in the options market.

The introduction of options can give much flexibility to institutional investors and banks as this will enhance the risk management ability of these institutions, especially banks, as they can hedge gold collaterals with them in the market. Moreover, the participation of institutions will enhance the depth of the market further, besides refining the price discovery mechanism. The introduction of index futures would also help institutions to hedge their risks better, said Alex K Mathew, head (research) of Geojit Financial Services.

If the data released by Forward Market Commission (FMC) on Friday is something to go by, commodity exchanges in the country recorded a total business of Rs 2,10,276 crore in futures segment during the first 15 days of 2008a jump of 43% compared to the same period last year. Turnover of the MCX stood at Rs 1,69,572.92 crore, while the NCDEX clocked a turnover of Rs 32,682.39 crore during the period and Ahmedabad-based MCE registered a turnover of Rs 633.72 crore. Among regional bourses, Indore-based National Board of Trade recorded a turnover of Rs 4,994.62 crore.