FMC tightens permit process for trading in delicensed commodities

Acting tough on the single commodity exchanges, the Forward Markets Commission (FMC) has tightened the process for granting permission to restore futures trading in de-licensed commodities.

The commodity markets regulator has sought details of steps taken by commodities exchanges to make contracts liquid, in at least two cases. It has also asked for clarifications about the failure of these contracts in the past. Permission for futures trading in additional commodities has always been a tough task for product-specific exchanges due to their limited access to resources.

In a significant move, the Bombay Commodity Exchange (BCEL), an age-old oil and oilseed futures trading platform, has sought permission to restore trading in all vegetable oils and oilseeds (including palm oil, sunflower oil and seed, groundnut oil and seed and sesameseed and oil barring soybean), for which the regulator has asked for clarifications.

The exchange excused itself from trading in Gujarat-centric edible oilseed and oils, as Indore is the largest hub of soybean in the country.

About a-year-and-a-half ago, BCEL’s licence to launch futures trading in edible oilseeds and oils expired. When the BCEL applied for fresh approval after the expiry of the validity of these contracts, the FMC asked them to apply for fresh approval for the launch of a second commodity.

An exchange needs to take fresh approval for the launch of a second commodity, after which it is entitled to apply for specific contracts. In the current circumstances, when volumes of regional commodity exchanges have gradually been shifting to national comexes, the success of new commodity futures is often doubtful.

Owing to the lack of resources, including manpower, technology and finances, the FMC has become extremely careful in granting permission for the launch of new contracts to single commodity exchanges.

A few months later, BCEL filed for fresh approval as instructed, but the FMC delayed the process by seeking details of the failure of these contracts in the past.

“Though we have already tendered all information sought by the regulator, the future looks grim to cash in on the ensuing kharif oilseed season. As a bumper crop this year, the timely permission would have fetched handsome revenue for us,” said Mahendra Chheda, president, BCEL.

BCEL currently offers trade in castor seed which generates an average fortnightly turnover of Rs 2.40 crore.

“We faced some software problems in the past for which the regulator got a number of inquiries. Probably that might be apprehending FMC to grant permission,” Chheda added.

Chheda, however, conceded that contracts other than castorseed remained illiquid on BCEL before the expiry of last available futures.

Shyam Agarwal, chief executive officer (CEO) of Rajdhani Oils and Oilseeds Exchange (ROEL), however, is hopeful that the regulator would grant permission for mustard cake, the contract it had lost in 2003.

Currently offering trade in mustard seed and jaggery (gur) with reasonable volumes, ROEL generates a fortnightly turnover of over Rs 36 crore. Gur, however, has remained least traded commodity across all exchanges and ROEL is no exception.