Commexes seek reforms: Urge series of steps on govt, FMC

Suggest more sensible rules on shareholding, agri contracts, banks' direct involvement and in warehousing, among others

With lack of confidence hitting business sentiment in the commodity derivatives markets, exchanges in the segment have urged the Forward Markets Commission (FMC) to widen the horizon for trading.

In a meeting on Friday chaired by Arvind Mayaram, the Union government’s economic affairs secretary, the comexes articulated a road map for growth of futures markets. Many suggested the shareholding norms be made simpler, by removing the sub-categories of mandatory holding by certain groups. Also, that comexes needed to be capitalised well, to attract investors.

At present, some exchanges face a big problem in attracting investors for a stake sale or for raising fresh capital. “Restrictions in shareholding rules regarding who can own how much, etc, once removed, especially for foreign institutional investors and foreign direct investments, currently at a maximum 49 per cent, will mean exchanges will be able to attract more competitive investments. In fact, exchanges will be able to adopt more ethical business practices, currently lacking,” said a participant, on condition of anonymity.

The exchanges also recommended removal of restrictions on agricultural contracts, saying these were limiting the growth of commodity futures. Many states have imposed stock limits; others offer only limited access, due to the wide gap between cities and hinterlands.

“Exchanges also recommended allowing banks’ participation directly in commodity futures markets, along with reforms in the Agricultural Produce Marketing Committee Act,” said another participant.

While banks’ direct participation in these markets is not allowed, they have been financing farmers against the collateral of agri commodities. So, their participation exists indirectly. The exchanges, therefore, urged FMC to get the ministry to amend the banking rules to accommodate banks’ direct involvement in commodity futures. They feel this is necessary to increase its depth.

Apart from others, “we also recommended warehousing reforms and convergence of information technology to enhance transparency between capital markets and commodity futures markets, to achieve the desired economies of scale”.

FMC data showed the cumulative value of trade across all comexes declined 37.5 per cent to Rs 85,28,864 crore between April 1, 2013, and January 15, 2014, compared to Rs 1,36,51,990 crore in the same period last year.