FMC suggests review of easy credit for trading in commodities

Regulator had earlier highlighted irregularities in guar futures trade

Commodities market regulator Forward Markets Commission (FMC) has suggested reviewing of easy credit by banks and other institutions for trading in commodities like guar, in a bid to curb speculation.

In the final report on 'Analysis of price movement and trading in guar complex" submitted to the Consumer Affairs Ministry, FMC has suggested various measures to check speculators participation in guar trading.

The regulator in May had come out with an intial report on guar futures trade during February-March 2012 and had highlighted irregularities in guar futures trade. It had also found involvement of some entities in the sharp rally during the period.

On the recommendations of the regulator, a senior government official said, "FMC has recommended that availability of easy finance is a prerequisite for processors, exporters and other value chain participants, but the financing for purely commodity trading needs to be curbed."

The option of easy institutional finance has helped in infusing additional liquidity with the commodity traders and has helped the market to grow, the official added.

"The regulator feels that although this step has helped infuse more funds in the market, yet, there is a need for policy review regarding commodity financing by financial institutions and banks," the official said.     

Futures prices of guar gum at the NCDEX platform had more than doubled between February-March this year on speculation, prompting the market regulator to stop traders from taking fresh positions in the running contracts.

According to the exchange data, guar gum prices stood at Rs 92,090 per quintal on March 22, as against Rs 42,019 per quintal on February 1 despite negligible participation. The prices, however on March 23 fell to Rs 71,970 per quintal after FMC intervention.

In order to bring more transparency in the commodities futures market, FMC is considering issuing directions to large position holders to declare their physical market positions, the official said.

That apart, regulations on day-trading, strengthening guidelines for Margin Funding, allowing futures in narrow commodities like guar seed and gum, mentha oil, cardamom, etc are also being considered by the regulator, the official said.

"FMC also suggested setting up a dedicated agency to collect and disseminate timely information on production, imports, exports, stocks and overall availability of commodities to bring more transparency," the official said.

The regulator in its report also suggested that it should be vested with powers to impose financial penalties on erring market intermediaries directly for effective control of the commodities futures market, the official added.

At present, the country has five national and 16 regional commodity exchanges.