Decision to suspend trading cannot be taken in a hurry: Ramesh Abhishek

Interview with Chairman, FMC

The Forward Markets Commission (FMC) is facing allegations of taking late action in guar, after speculators made their profits and exited. Ramesh Abhishek, chairman of the commodity derivatives market regulator, denies such late actions in an interview with Dilip Kumar Jha. Edited excerpts:

There are many allegations against FMC for late action in guar futures.
We are taking all possible regulatory steps under the framework of the Forward Contracts (Regulation) Act to deal with the situation. We imposed a cash margin of 60 per cent on the buy side, which, combined with the initial margin, totalled 73 per cent. We reduced the speculative position limits and also changed clubbing guidelines, which had led to a lot of third-party transactions, and helped exchanges in cutting their position. We investigated further and suspended traders. We approved the exchanges’ request for reducing the lot size. We banned any fresh position for both January and March contracts, too. It is a continuous process and a phase-wise response of the Commission. I do not agree that FMC has been late in taking action. Suspension of trading in a commodity is not a step which can be taken right away whenever there is a possibility of manipulation or price rise. That should be the last step.

There is rampant speculation in commodities like chana and rapeseed-mustard. Are we going the guar way for these, too?
We have asked exchanges for effective monitoring and surveillance of agri commodities in particular and are keeping a close watch on it. We have asked commodity exchanges to provide details of mark-to-market beneficiary accounts for the past six months in highly liquid farm commodities, including potato, guar, chana, rapeseed-mustard, cardamom, mentha oil, pepper and soybean.

Guar contracts have been suspended. What is the way forward?
All guar contracts have been suspended for the current season, until September. For the next season, exchanges would require fresh approval from FMC to launch contracts. There is a wide difference between guar seed stock in NCDEX warehouses and open interest on exchange platforms. We have closed out contracts for the current season. Those who have short positions would be required to deliver the commodity. For this season, there will be no futures in guar gum and guar seed. We will see during the next season.

Do you think three months is enough to bring down the Kailash Gupta-promoted Neptune Overseas’s stake in the National Multi Commodity Exchange (NMCE), after your victory in the Supreme Court recently?
The Supreme Court in an interim order has stayed the earlier order of the Gujarat high court, in which Kailash Gupta had been granted partial relief. With this, the July 2011 order of the FMC gets restored. The interim order is subject to the final order set to be passed by the Supreme Court after six weeks from March 23. We will have to wait for the final decision of the court. Whatever would be the implications of the order, one will have to follow. Three months would have been given in pursuance with the FMC order on July 23, 2011. Now, a lot of time has passed. Hence, we would have to examine how that works.

Is there any extension planned?
We have not received any formal request from any quarter that they need more time to divest. Hence, the issue is hypothetical.

To avoid distress sales, if NMCE approaches you, would you consider the request?
We will have to examine after receiving a proposal.

What is the status of the United Commodity Exchange ?
They have sought a little more time for complying with the guidelines of a national exchange. They told us they had completed the paid-up equity requirement. We are expecting they would submit a proposal in the next few days.