FMC urges govt to amend FCRA

Mumbai, Nov 24 | Updated: Nov 25 2005, 08:41am hrs
After suggesting radical overhauls in the countrys antiquated policy on commodity futures, the Forward Markets Commission has been urging the government to adopt them and speed up the growth in Indias commodities trade, a senior FMC official said on Wednesday.

We keep on cajoling and asking the government (to go ahead with the proposed changes), said Mr Kewal Ram, member at FMC. We hope something will come up very shortly. MrRam said the act under consideration for amendment - Forward Contracts (Regulation) Act of 1952 - awaits an overview by the cabinet, following which it would be approved by the parliament.

Though Mr Ram didnt say if the current winter session of the parliament that began Wednesday could take up the amendment, several government officials say there is a chance the long delayed bill could indeed come up in the winter session.

Maybe it is held up because of the convergence issue, Mr Ram said. The government may want to sort that out before tackling the amendment.

Convergence, an idea floated two years ago by the government, envisaged a common market regulator for stocks and commodities that could lead to a merger of the Securities and Exchange Board of India (Sebi) with the FMC. Though the idea has been put aside for the moment, Mr Ram said it has bearings on the FCRA amendment, which means the governments long-term stance on a common market regulator must be made clear.

He added, The amendment bill doesnt hinge solely on the convergence issue. An amendment of the FCRA would enhance the trading at the commodity exchanges with options trading and new contracts such as weather and index futures, officials have said.

Mr Ram said the measures recently enforced by the FMC for uniform minimum margins and price limits across exchanges for many commodities are part of evolving regulations. When we opened up the market, we gave a certain degree of freedom to the exchanges, he said. Now there is a need to have uniformity and that rationalisation has just started.

Compulsory delivery, another measure being considered by the FMC, could add greater transparency in the market dogged by criticism that it is too speculator-led. There is a charge that this market is speculative and is far removed from hedgers. Therefore, to meet that charge, we are trying to go in for compulsory delivery of contracts on their expiry date, said Mr Ram.

An FMC body is set to meet soon to take a view on compulsory delivery that only some exchanges currently follow for some commodities, Mr Ram informed. Though the FMC wishes for a common trading pattern for all the exchanges, they were free to have more stringent trading checks in place.

CRISIL MarketWire