Letters: Futureless option

This refers to the editorial "Risky option" (July 28). Options trading is a natural corollary of futures trading. However, the entry of banks, foreign institutional investors, mutual funds and foreign hedgers in Indian agri-commodities is fraught with danger. It is disconcerting to note that recommendations have been made merely to provide liquidity and depth to the commodities market without an analysis of deeper implications for the economy. Banks and institutions will enter the commodities market not as voluntary market makers, but to generate profits for themselves. As in the equity game, volatile bull markets are the ones that bring profits to the futures and options players. Price rise will be a natural consequence when cash-rich players start chasing local agri-commodities. This is as good as hoarding.

Regulatory provisions cannot prevent manipulative trade. Regulators can only limit the damage or they may conduct a post-mortem if things go out of hand. What actually happen is price manipulation in the garb of discovery and hedging. The latest example is chana, where futures trading has been suspended. Unlike equities, agri-commodities being perishable cannot be a long-term investment option to provide capital for economic revival. Of course, banks and institutions are welcome to trade in international commodities such as oil, gold, silver, where global markets define market prices. The common man's budget requires stable and affordable food prices.

Vinay Kant Kapur New Delhi

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