NCDEX to focus on liquid contracts

At a time when the Forward Markets Commission (FMC), the commodities market regulator, is planning to ensure trade in illiquid contracts, the National Commodity & Derivatives Exchange (NCDEX), the country’s second-largest commodity exchange, has decided to put more emphasis on liquid contracts.

R Ramaseshan, managing director and CEO, said, “Instead of making efforts and investing a huge amount of money to activate illiquid contracts which may or may not succeed, we are concentrating more on liquid contracts.”

This does not mean the exchange will not launch any new contract and has stopped efforts to activate the illiquid ones, according to Ramaseshan. He added there was immense potential in these successful commodities.

The exchange currently facilitates trading in 52 agri and non-agri commodities, of which, 15 are highly active. While commodities like plastics have not taken off, other minor agri commodities and a number of globally referenceable contracts are minutely traded.

Ramaseshan said for example, the contract for plastics never took off. To activate this contract, we needed to engage all stakeholders, which was next to impossible, he said. “Therefore, we prefer liquid contracts for growth,” he said.

The exchange has also asked its sales team to enroll medium size traders across major urban and rural mandis as members. The medium-size member will pay Rs 5 lakh as membership fee as against Rs 30 lakh that large and full time players pay.

The idea was to bring more physical players onto the futures platform to assure quality and risk-free trading, Ramaseshan said.

The exchange has also identified geographical extension onto eastern and northern states.

Currently, the trading is confined to Maharashtra, Gujarat, Madhya Pradesh and Rajasthan. Once these states have huge consumption of agricultural commodities, there should be some trading potential as well, says Ramaseshan.

Meanwhile, the FMC is in the process of outlining framework for illiquid commodities, allowing additional time to exchanges for activation of illiquid contracts.