Q&A: Ramesh Abhishek, Chairman, FMC

'Specialised commodity exchanges are a market call'

Within its limited powers, the Forward Markets Commission has managed to regulate the commodity futures market beyond the expectations of participants, says Chairman Ramesh Abhishek. He talks of the challenges ahead in an interview by Dilip Kumar Jha. Edited excerpts:

With the Multi Commodity Exchange (MCX) getting the nod of the Securities and Exchange Board of India for a public offer, do you see regulatory overlap, as in the case of electricity futures?
Not in the case of MCX's IPO. FMC has already given a no-objection to MCX in this regard. For listing on the stock exchanges, MCX has to follow the relevant guidelines

FMC is framing guidelines for the Investor Protection Fund (IPF) and Settlement Guarantee Fund. What are the major changes expected?
The Commission had issued guidelines four years earlier for setting up an IPF in commodity exchanges. Some exchanges have requested the Commission to consider the issue, such as the nature of the entity that would administer this fund, which penalties would be deposited with IPF and whether money from this fund could be invested in mutual funds. We have held a detailed discussion with the exchanges on these issues. Revised guidelines may be issued by the end of this month.

You have restricted the number of commodity exchanges to eight. Does that mean no new applications will be entertained?
IT People will be the sixth exchange if they are granted approval. NBOT has not yet applied for national exchange status. Once they fulfil the criteria, they can apply for national status. There was one more application but no further movement on that front.

Has the time come for specialised commodity exchanges, to avoid inter-exchange and inter-commodity arbitrage opportunity?
Commodity futures markets have been developing rapidly since they were granted permission in 2003. We have to see how the market develops further. Amendment of the FCRA (Forward Contracts Regulation Act; Bill is pending passage in Parliament) is itself very important. On the issue of specialised commodity exchanges, it is for the market to take a call.

What is your take on dabba (illegal, off-exchange) trading in regional commodities?
We are taking several measures to address this rather serious problem. We are undertaking the training of police officers in various states. We are already in touch with a number of state governments to train police about the FCRA, the role of police in this regard, the kind of FIR, investigations to be done, scrutiny by the Commission of the documents seized by the police, etc. Also, we are going to educate people through advertisements about the risks and dangers of such illegal trading. We will continue taking action as usual under the FCR Act. The banning of a commodity may not stop dabba trading and there is no such proposal before the Commission.

Is there any time frame being worked out for illiquid contracts to withdraw from the exchange platform?
Whenever contract proposals are sent to FMC for approval, we do ask exchanges about the steps taken by them for mobilising liquidity in existing illiquid contracts, along with fresh initiatives for the proposed contracts. Such steps do not work all the time, due to many challenges. Hence, we need to give exchanges reasonable time to enhance their effort to mobilise liquidity in illiquid counters.