FMC urges exchanges to ensure price stability

The Forward Markets Commission (FMC) has asked commodity exchanges to ensure stability in futures prices and has also come out with a list of steps that they should take in this regard, director D S Kolamkar on Thursday said.

Noting that the liquidity in some of the contracts launched by commodity exchanges has been poor, FMC has asked them to be more liberal when designing contracts, he said.

The volatility in commodity prices suggests that markets are being driven by financiers and technical investors, he said, adding that their participation, however, is vital to provide liquidity.

Kolamkar was speaking on the sidelines of a seminar here on commodity futures.

To a query on whether farmers are benefiting from futures trading in commodities, he said, "(Futures) markets have revived after a gap of 40 years and a lot of things need to be done. But reports suggest that farmers and stakeholders are benefiting from commodity trade, at least in certain states."

Admitting that farmers are still not very active in futures trading, Kolamkar pointed out that, globally too, their participation has been weak.

Among the FMC's concerns is the need to ensure that price discovery is based on supply and demand forces, he said.

The regulator had recently suggested to the government that mutual funds, financial institutions and banks should be allowed to participate in futures market.

Once these players are allowed entry, funds will flow into the market and their access to information will bring price stability and reduce volatility.