Intensify work on illiquid contracts: FMC to bourses

The Forward Markets Commission (FMC), the commodity markets regulator, has asked commodity exchanges to work extensively on illiquid commodities to attract participation from traders, speculators and hedgers.

“We convene periodical meeting with exchanges to assess the progress made on illiquid contracts. They (exchanges) also engage market participants in seminars, conferences, etc, and educate them about the benefits of trading on the exchange platform. But, the progress is very slow,” said D S Kolamkar, member, FMC.

Kolamkar asked exchanges to change contract specifications in coordination with local market participants, if need arises. Out of 85 contracts listed for futures trade, only 15 are actively traded. Of these, half a dozen bring 70-75 per cent of volumes.

Illiquid contracts are not a problem for only India, where futures markets are highly regulated, but overseas also, where many contracts find huge participation only in the first few months. The FMC cannot allow illiquid contracts to remain listed on the exchange platform for ever. They should be time-bound, said Kolamkar.

Earlier FMC Chairman BC Khatua had said, “The commodity futures markets opened after 60 years of ban and are now hardly six years old. Therefore, comexes require more time to work on the newly launched contracts to attract trades. We are surely going to enhance testing time for comexes and therefore have no plan to de-list illiquid products.”

The Multi Commodity Exchange (MCX), however, has decided to work in phases towards activating illiquid contracts. According to Lamon Rutten, MD and CEO, the exchange has identified five agri commodities, including cotton, guarseed, soybean, steel and crude palm oil, and has started sending its officials to respective production and consumption areas.