No proposal to set up new commodity futures regulator, says govt

There is no proposal to set up any other regulatory authority for the commodity futures market, the government said today.

It also said that there is no evidence to support the contention that “futures trading is responsible for inflation”.

While the commodity futures market has made progress, there is no proposal to change the current way of conducting commodity futures trading on the exchanges platform, Minister of State for Finance Jayant Sinha said in Parliament.

“FMC, set up in 1953, regulates forward and futures trading in commodities. There is no proposal for setting of any other regulatory authority for regulating future/forward trading under the consideration of the government,” he said.

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Forward Markets Commission (FMC) has been set up under the provision of the Forward Contracts (Regulation) Act, he said in his written reply to the Lok Sabha.

Asked about the extent to which futures trading is responsible for inflation, Sinha said: “There is no evidence to support the contention that futures/forward trading is responsible for inflation.”

He said several studies such as Abhijit Sen Committee Report (2008) and the Annual Report of RBI (2009-10) have concluded that futures trading is not responsible for inflation.

An independent study, conducted in 2012, has reported that during the period from 1995-96 to December 2012, three factors – fiscal deficit, global food inflation and domestic farm wages – explain the price rise (inflation) in the food articles index in India, he added.

Sinha said many commodities such as onion, fruits, vegetables (other than potato), eggs, fish or other perishables are not traded in the futures market.

The commodity futures market is a mechanism for price discovery and price risk management. It merely discovers the likely prices of a given commodity at futures points of time depending on the expectations of supply and demand, he added.

Asked if the government proposes to change the present system of business through the forward trading, Sinha said: “No Sir. Forward trading has been conducted in the past on the platform of the regional exchanges and regulated under the provisions of the FCRA.”

Highlighting the achievements of FMC, he said the regulator has taken several regulatory measures for improving price discovery and risk management.

As a result, the commodity futures market has made progress in terms trading volumes, robustness of clearing and settlement, bouquets of products available for trading and governance of exchanges, he said.

However a report submitted by a committee in April to the Finance Ministry has “observed that futures market is fairing relatively well on price discovery and relatively poor on hedging effectiveness”.

Sinha said the report has suggested that a diverse array of firms such as banks, foreign entities and other financial institutions should be permitted in the commodity futures market which would improve liquidity and hedging.

Sharing recent initiatives taken by the FMC, the Minister said that the regulator has approved trading in delivery-based forward contracts in sugar and maize on the platform of national level exchanges.

“Forward trading in agri-commodities through the exchange platform facilitates participation of physical market players and much better price discovery in the market. This is expected to gradually reduce the cost of intermediation in the physical matter which would help both sellers and buyers of
these commodities,” he said.

Currently, FMC regulates four national and six regional level commodity exchanges in the country.

PTI