No stock limits for goods in regulated warehouse for futures market

In a major relief to the traders on commodity futures market, the government has decided to give exemption of commodities kept in regulated warehouses for futures markets from the stock limits fixed under the Essential Commodities Act. These warehouses need to be registered by the Warehouse Development Regulatory Authority.

The commodity market regulator Forward Markets Commission last Friday sent a communique to all exchanges informing the government decision.

The move is a big relief for commodity futures market players as several essential commodities like pulses, potato, edible oils, wheat and sugar are traded on futures exchanges and government invariably invokes the stock limits on some of these commodities depending upon the price and crop situations. Stock limits make the hedging of price risk related to these commodities difficult on exchange platform. However, exempting them from such limits provided they are stored in warehouses registered by warehouse regulator WDRA will be subject to the condition that "these warehouses publish the information of stocks available with them on real time basis", stated the FMC communique.

This facility will be available only to those traders who trade on futures exchanges and should have stored the commodity in regulated warehouse. Other traders stock in the regulated warehouse will not get this exemption, said an industry executive.

The logic for giving exemption, according to an exchange official, is that the stock may be more than the prescribed stock limit but that can be hedged on the exchange and the information about that will be in public domain and hence clandestinely hoarding it will not be possible so far as it is for futures market.

The move follows some cases in past where the futures exchange was permitting stock and positions limits which turned out to be higher than the stock limits prescribed for that commodity. The cases were found in sugar in Maharashtra and chana in Rajasthan where civil supply department officials had objected to the higher stock and later the issue was sorted out with the help of respective exchanges.

Now that thing will not arise with government exempting such higher storages with conditions.

The move first received inprincipal approval of Ministry of Finance in August 2014 as the commodity futures regulated by the FMC falls under Ministry of Finance. The then Economic Affairs secretary Arvind Mayaram recommended to the Ministry of Consumer Affairs to provide such exemptions and on 17th October this was notified to the Ministry of Finance.