FMC asks investors to live with CTT; proposes reforms

Amid sharp fall in trade volumes after imposition of CTT, commodity markets regulator FMC today said there is no thinking on reversing this tax, but several reforms are being considered to encourage participation.
Commodity Transaction Tax of 0.01 per cent was slapped on futures trading of non-agricultural items and some processed food items in July 2013.
There are five national and 12 regional level bourses. Their combined turnover fell by over 37 per cent to Rs 85.28 lakh crore till January 15th of this fiscal.
"We feel that low trading volumes in many commodities are due to many reasons. CTT is something that investors have to live with. We need to see that how participation can be increased despite taxes," Forward Markets Commission (FMC) Chairman Ramesh Abhishek said at industry body Assocham event.

He expressed confidence that participants will come back as the regulator is taking several steps to enthuse more confidence in the market, bring more participation and better governance at the commodity exchanges.
Stating that trade volumes cannot be build over night, C K G Nair, Advisor in the Finance Ministry, said: "First, we have to build the institution with corporate governance and ethos. Unfortunately, market has moved fast, the regulatory empowerment could not be done fully."

Highlighting the major reforms being proposed to encourage participation in the market, FMC earlier said it will soon relax norms and permit brokerage firms, who hold equity in the bourse, to trade on the exchange platform.

"Right now, guidelines do not allow trading in exchange by brokerage firm who hold equity. We are going to recommend to the government that brokerage firm having equity up to 2 per cent in the exchange can be permitted trade unless they do not have say in the Board or management," he said.
On allowing FIIs and MFs, Abhishek said: "Forward Contract Regulation Act (FCRA) does not stop them even now. It has be considered by respective regulators. This can be done without waiting for amendment to the FCRA."
However, for launching new products like options, the passage of the long-pending FCRA amendment bill is required, he said, adding that this bill is likely to be taken up in the ongoing extended Winter session of Parliament.

To boost investors' confidence in the market, FMC said it plans to implement recommendations of the Financial Sector Legislative Reforms Commission (FSLRC) to strengthen consumer protection by end of March.
To encourage retail investors, FMC said the exchanges are encouraged to launch small contracts, delivery-centre wise contracts among others.
He also said the regulator is working on rationalising position limits and initial margins for clients members, the corpus size of settlement guarantee fund, besides strengthening the warehousing facilities.