FMC bans fresh positions in potato futures

Concerned at 'one-sided' price movements; imposes fresh margins on buyers, asks MCX to investigate source of funds of top participants

The Forward Markets Commission decided on Wednesday to disallow fresh positions in potato futures, following one-sided price movement and shallow participation in the contracts.

It said no fresh positions in potato contracts can be taken in far-month deals for July, August and September.

Instructions have not been issued by FMC or the Union government on any other commodities.

With effect from Monday, a 25 per cent cash margin on the long (buy) side has been imposed in July, August and September contracts. This means once the June contracts expire, only squaring off of positions will be permitted.

FMC chairman Ramesh Abhishek said, “The decision is based on the commission contract monitoring system, which suggested that in potato contracts in the past three months, there was no delivery, price movement was one-sided and participation was much lower, warranting some action.”

In 10 weeks, potato prices have risen 53 per cent. Potato futures are traded only on the MCX and on Wednesday, on report of government action on essential commodities, potato futures prices on the MCX in all four contracts was down to the four per cent lower circuit. Hardly 40 traders were participating and against 40,000 tonnes of open interest, the stock in exchange-accredited warehouses was 2,000 tonnes.

Accordingly, FMC has asked MCX to check the source of funds of the top 10 clients. It wanted to know if traders against whom some action was taken in the past had traded in others' names.

Abhishek had in the past said there was no proposal to delist futures trading in essential commodities. However, the consumer affairs ministry, which was earlier handling commodity futures (now with the finance ministry), does not favour futures in essential commodities till the regulator is strengthened. A consumer affairs ministry official said: “Their experience in handling affairs related to the futures market for such a long time shows unless a proper regulatory regime is in place, essential commodities should be kept out of the purview of the futures markets.”

Officials said the matter was not discussed in Tuesday's meeting on food inflation called by Finance Minister Arun Jaitley. They added that the government has to form a view on the subject, as temporary suspension of futures in essential commodities had been part of a report prepared by Narendra Modi, now the Prime Minister, in 2011 when he was chairman of a chief ministers' committee on reforms in agriculture marketing.

They add, though, that at the time of the report the futures market in some commodities was not synchronised with the physical market, given as a reason for the recommendation. Since then, much has changed in this regard.