No plan to ban futures trade, will curb speculation: FMC

Written by Banikinkar Pattanayak | New Delhi | Updated: Mar 31 2012, 08:39am hrs
Belying rumours to the contrary, the Forward Markets Commission (FMC) said on Friday that it did not have any plan to ban futures trading of any commodity despite a recent flare-up in prices of some farm items. The regulator, however, said it would not hesitate to step in with available tools to curb speculation in the market.

FMC chairman Ramesh Abhishek told FE: We have no plans to ban futures trading in any commodity as of now. But we have enough tools at our disposal, including imposition of special margin, to regulate and ensure fair practice in the market.

We are closely monitoring prices of mainly farm commodities, especially chick pea, rapeseed, soyabean, potato, spices and mentha oil, and will act according to the situation, he added.

Speculation about a possible ban on some farm futures gained pace after the regulator recently asked exchanges to suspend fresh positions in guar contracts, alarmed by a 120% spike in guar gum futures in one month. The FMC also directed the National Commodity and Derivative Exchange to suspend outstanding positions in guar contracts from March 27 after the exchanges attempts to curb volatility by levying special margin and reducing position limits failed to prevent a flare-up in prices.

Suspicions of foul play still lingered due to a recent surge in futures prices of other key farm items. Between January 31 and March 29, the futures prices of cardamom, potatoes and mentha oil surged by 53%, 47% and 46.5%, respectively, while chick pea gained 13% and rapeseed 17%.

Industry bodies such as Assocham and the Soybean Processor Association of India had also sought probe into suspected manipulation in the market. Consequently, food and consumer affairs minister KV Thomas has also asked the FMC to investigate the matter.

"We are always vigilant and we continue to take steps to curb volatility in the futures market. It's just that recently such things have been highlighted much. Our monitoring of prices will continue as always," Abhishek said, adding that the regulator also factors in opinions of different stakeholders while reaching a decision.

The NCDEX on Friday imposed special deposit margins on chick pea and a 10% special margin on rapeseed to curb speculation. The May chana contract on the NCDEX was down 3% to Rs 3,634 per 100 kg, while rapeseed for April delivery shed 2.11% to Rs 3,764 per 100 kg in intra-day trade.

Opposing any ban on commodity futures due to the recent price rise, NCDEX chief business officer Vijay Kumar said, "It's just like you are shutting down your road construction programme because there is an accident on the road."

He said the recent spurt in prices has been caused by demand-supply fundamentals, sparked by the transition between the old crop cycle and the new one. "The timing is also important. If the country doesn't have adequate stocks when a season ends and the new crop is yet to come, there could be some upward pressure on prices. This is what has happened now as well."

"A ban defeats the very purpose of what a commodity is being banned for. The futures market offers a price discovery, and in the absence of it, there won't be any transparency because anybody can quote any price in the spot market," Kumar said.

The winter crop is slowly coming to the market after stocks of summer crops have dwindled in oilseeds and chick pulses, with the country meeting nearly 60% of its vegetable oil requirement and 20% of pulses needs through imports. "There has been a spike in imported price of palm oil. Also, the rupee has depreciated much against the dollar in the past one year. So domestic prices have also been affected accordingly," Kumar said.

Significantly, the government had imposed period ban on some farm commodities, but the prices continued to flare up. Earlier, the Abhijit Sen committee, set up to study a possible link between the futures trading and price rise, concluded that there was no conclusive evidence to prove that futures trading was stoking inflation.