The decision was taken to remove any perceived anomalies between the Essential Commodities (EC) Act and Forward Contracts Regulation Act (FCRA). While the EC Act permits states to fix limits on stocks a commodity dealer can hold, the FCRA allows a holder of a commodity futures position to offer or take delivery of essential items from warehouses without any limits
Acceding to a long-pending demand by the commodity futures market regulator as well as participants, the government has excluded items stored in regulated warehouses from the ambit of stock limits imposed by state governments to control hoarding.
“The commodities kept in regulated warehouse (registered by the Warehousing Development and Regulatory Authority) have been
exempted from stockholding limits under the Essential Commodity Act, 1955, subject to the condition that the warehouses publish the information of stock available with them on real-time basis,” the Forward Markets Commission (FMC) said in a letter to various commodity exchanges on November 7.
The commodity futures market regulator has now asked the exchanges to inform market participants about the decision.
The decision was taken to remove any perceived anomalies between the Essential Commodities (EC) Act and Forward Contracts Regulation Act (FCRA). While the EC Act permits states to fix limits on stocks a commodity dealer can hold, the FCRA allows a holder of a commodity futures position to offer or take delivery of essential items from warehouses without any limits.
Late last month, consumer affairs secretary Keshav Desiraji had written to then economic affairs secretary Arvind Mayaram, approving the proposal.
“An advisory has been issued to all states in this regard,” Desiraju had said in the letter. The WDRA, with which all warehouses catering to the futures markets are mandated to be registered, is under the administrative control of the consumer affairs ministry, while FMC was last year shifted to the finance ministry following a R5,600-crore settlement crisis at the National Spot Exchange Ltd (NSEL).
“This is a good move by the government, as it will attract more volumes and more genuine investors to trade in a structured market in a transparent manner,” said CP Krishnan, director at Geojit Comtrade.
Hailing the move, SMC Comtrade chairman DK Aggarwal said many traders were not hedging large volumes due to stock limits imposed by various states on essential items.
Commodity exchanges’ turnover goes down Commodity exchanges’ turnover dropped 15% in the second fortnight of October from a year before, although the fall is much lower than that of 51% recorded during the April-October period this fiscal.
Market participants have blamed a 0.01% transaction tax on non-farm commodity derivatives, imposed since July, the spill-over effect of a settlement crisis at the National Spot Exchange Limited, curbs on gold supplies and an investor shift towards equity for the plunge in turnover.
The trading value of various commodities in the second half of October hit R2,69,776.07 crore, compared with R3,17,322.72 crore a
year before, according to the FMC data.
Although the pace of the slide was slower than in the previous months, the turnover of various exchanges hit R34,52,214.15 crore in the April-October period, as against R71,60,162.84 crore, the data showed.
FMC has also “discontinued” guarseed and guargum contracts traded on the Multi-Commodity Exchange (MCX) in October, November and December.
The MCX itself had requested for the discontinuation of guar contracts. Moreover, to curb volatility, the FMC has also asked exchanges to impose a minimum initial deposit amount of 5% for guargum and guarseed.