FMC to soon decide NSEL proposal on forward agri contracts

The commodity markets regulator, the Forward Markets Commission (FMC), would soon be deciding on an application from the National Spot Exchange (NSEL) for seasonal forward contracts in agricultural commodities.

NSEL, promoted by Financial Technologies, had applied around eight months earlier. “The proposal is under FMC’s active consideration, which we will clear soon,” said FMC chairman B C Khatua on the sidelines of a press conference here today.

Suppose a farmer is set to harvest a crop in a month and he wants to sell the commodity today. Such a mechanism is not currently available. NSEL has applied to provide such a mechanism to stakeholders of the spot market, so that farmers wish to ‘block’ a current price for a future delivery may do so; consumers, too, may wish likewise. The exchange will guarantee delivery at the booked price, said Anjani Sinha, managing director of NSEL.

 

“We are planing to introduce contracts which should not clash with existing futures exchange. Rather, we would like to complement them. Our proposed contracts are truly delivery-based, which would neither be settled on a cash basis, nor can be forwarded further. Hence, whatever the contract period buyers and sellers enter into, the latter needs to deliver the goods for the exchange benchmark quality. Similarly, buyers need to accept the delivery at any cost,” Sinha said.

Khatua explained that some participants raised apprehensions in a recent meeting of eastern region members in Kolkata on the nature of such forward contracts. They feel these would clash with existing contracts on futures commodity exchanges. “We had sought details from NSEL, which they have provided. We are assessing the details for taking a final decision,” he said.

Such contracts may work extensively for oilseed, spices and cattlefeed, as prices of these commodities fall during the harvesting period and rise at the time sowing. Hence, such contracts would benefit farmers.

On launching mini contracts in agri commodities on a futures exchange, Khatua said, “We would allow such contracts only when noticeable participation from retail farmers — not 80 per cent but at least even 10 per cent — is witnessed.”

The FMC is also considering a regulation to make agri commodities deposited at one exchange fungible across the board. This means uniform quality standards would be adopted across all exchanges.