FMC mulls measures to broadbase agri futures

The FMC is considering steps to deepen the market, make the environment more flexible for hedgers and create room for smaller farmers to trade in the futures market

The commodity futures market regulator is considering several measures to broadbase participation agricultural commodity futures trading. On the anvil are measures to deepen the market, make the environment more flexible for hedgers and create room for smaller farmers to trade in the futures market.

The Forward Markets Commission (FMC) would be issuing a circular to exchanges to reduce the lot size of four agri commodities - soya oil, soya bean, turmeric and coriander - to one tonne. Ramesh Abhishek, chairman, said: "This was also recommended by the Standing Committee of Parliament and is being done with a view to improve volumes in agriculture commodities."
 

Once this experiment is successful, lot sizes will be reduced in other agri commodities.

Traders say part of the motivation is the coming imposition of commodity transaction tax on non-agri commodities; this is expected to affect volumes in that segment.

FMC is also consulting exchanges to link member-level trading and open interest limits to the net worth of the member concerned. This will allow large net worth members to raise Open Interest (the number of derivative contracts not delivered on a particular day) and allow more clients to trade through them.

The environment for hedgers is also being liberalised. Hedgers are those with exposure in the physical market and they hedge risk in that market on the futures platform. FMC's proposal is to exempt hedgers from additional and special margin payment.

In the recently approved Finance Bill, the Income-Tax law has been amended to allow set-off of losses and gains in the commodity futures market with other business losses and gains. This is expected to boost hedging in commodity futures.

FMC might also provide two working days for members to collect margins from clients. At present, there is no such norm. However, members have to pay mark-to-market (revaluing assets at present values) margins to exchanges. FMC's move is seen as disciplining members to ensure proper margin collection.