FMC mulls monitoring body for future contracts

The Forward Markets Commission (FMC), the commodity derivatives market regulator, is contemplating a 12-15 member monitoring body for each agri commodity currently traded on the futures platform.

The body would comprise a member of FMC and one from each national commodity exchange, while the remaining members are proposed to be nominated by the regulator from the industry, including trade associations, producer and consumer sectors.

The development assumes significance as FMC sometimes requires advice from industry experts to take final decisions. Various segments of traders have alleged late action by the regulator to control volatility in the past, which was later rejected by its chairman, Ramesh Abhishek.

Members of each committee are proposed to meet at least once in two months to take stock of the situation in their respective commodity. However, the final shape is yet to be taken, said an FMC official.

According to Naveen Mathur, associate director, Angel Broking, “This is a good idea, as the participation from all segments of the commodity would help frequent brainstorming. Members would also deliberate the prevailing price in presence of regulator. While producers and traders would continue to support their interest, consumers would oppose their move and talk in their own favour. Therefore, any decision taken by the regulator would help all classes of people.”

Currently, all decisions from granting permission for the launch of a contract on an exchange platform to levying margins and suspension of a contract are taken independently by the regulator, in consultation with the ministry of consumer affairs.

The proposal comes at a time when commodity markets fear suspension of many agri commodities’ contracts from exchange platform.

Although the regulator has already asked exchanges to not launch any contracts in guar and soybean until the beginning of the new season, September, suspension fears looms large for most other liquid agri commodities, including chana, mentha oil, turmeric, cumin seed (jeera) and a couple of other commodities.

Such a monitoring body is a necessity for fair and transparent futures trade, said a trader.

FMC’s step to raise margins upto 73 per cent in all guar contracts early this year was widely condemned by industry stakeholders.

Early this month, FMC cut open position limits in a number of agri commodities. While the member level limit for all contracts, aggregate position has been brought down by 33 per cent to 100,000 tonnes in soybean from 150,000 tonnes earlier, the same in chana and mustard seed was cut to 75,000 tonnes each from 100,000 tonnes and 125,000 tonnes previously.

Open position limit for member levels in refined soy oil was brought down to 85,000 tonnes from 125,000 tonnes earlier.

An open position limit is the quantity an individual can hold under his account on the exchange platform.

A member’s open interest limit at aggregate level (all contracts and all exchanges) will be either the absolute number indicated above or 15 per cent of the market wide open interest in the commodity, whichever is higher.

In case of delivery (near) month, a member’s open interest limits (in all Exchanges) will be either the absolute number indicated above or 15 per cent of the near-month marketwide open interest in the commodity, whichever is higher.

In a directive on April 10, the FMC directed Ace to launch soybean contract for delivery in August and prohibited it from launch of September delivery contract.

The regulator also raised margins in a number of commodities to control volatility in these counters.