Regional comexes face a tough time

The single commodity exchanges in the country may face a tough time ahead in securing the Forward Markets Commission’s (FMC) approval for the launch of additional contracts. Recently, the FMC denied recognition of mustard seed, mustard seed oil and mustard seed oil cake contracts beyond July 31 to the Bikaner Commodity Exchange, arguing inadequate infrastructure.

This is significant as half a dozen single commodity exchanges have regularly sought FMC’s permission to add new contracts to prevent a possible threat of closure on account of a drastic decline in existing contract volumes since the launch of national exchanges.

When contacted, FMC chairman B C Khatua said, “We recommended to the government to grant extension in all the three contracts. But, the government denied the approval on the grounds that the Bikaner Commodity Exchange (BCEX) does not have skilled manpower to handle additional commodities.”

The Ministry of Consumer Affairs, however, did not have any objection to BCEX continuing with guarseed which is generating an average fortnightly turnover of Rs 25 lakh, he added.

Currently, offering trade only in guarseed through open outcry, BCEX has sent the approval request to the FMC once again, enumerating the infrastructure details. But, it is unlikely that the exchange would get the approval.

The three contracts remained illiquid for the last one year and probably, could be one of the reasons for denying recognition.

BCEX Director, Anand Kumar Goyal, confirmed the denial. “Does this mean that all illiquid commodities across all commodity exchanges would face the same fate for renewal,” asked Goyal?

According to trade sources, the success to failure ratio is 1:4 in the Indian commodity futures space as against 1:12 in the developed countries including the US and the Europe. Open outcry system of trade requires additional manpower to handle each traded commodity.

Qualified additional manpower is also required for commodities’ delivery and risk management, which the ministry found insufficient at BCEX , said Khatua.

Meanwhile, Khatua clarified that the online exchanges need not worry as they possess adequate infrastructure.

Ironically, BCEX also had the technology advantage from the Bombay Commodity Exchange, which is the same as being used by the National Multi Commodity Exchange.

But, after launching online trade for six months on this technology, the exchange found that the members were not interested.

Thus, the exchange’s board decided to revert to open outcry trading system which the members were comfortable with.