The Union government has constituted an advisory committee on he Forward Markets Commission (FMC) following the steep rise in prices of certain agricultural commodities, including some essential commodities, in recent months. There have been complaints in some quarters that excessive speculation in futures markets have also contributed to this price rise. The fundamentals of demand and supply in the physical market decide the prices of commodities. And futures market only acts as a platform for price discovery and price risk management for the physical market participants. The Forward Markets Commission (FMC) is keeping a watch on the situation and has been asked to use all the regulatory tools available to keep a check on the excessive speculation in the futures trading in commodities and specifically agricultural commodities. The Commission has already implemented higher margin requirements for trading in agri-commodities and has also reduced position limits for essential commodities. These are steps in the right direction. Ministry of Consumer Affairs, Public Distribution and Food has also asked the Commission to take the following steps: (1) The Commission would keep a very close watch on the situation and would continue to take all necessary steps to see that there is no excessive speculation in the futures market. (2) The Secretary, Department of Consumers is already conducting an enquiry into the recent fluctuations in the commodity futures market for guar seed and guar gum and the report is expected to be received within a fortnight. (3) To advise the Government and the FMC, it has been decided to form advisory committees for all commodities including agri-products which would consist primarily of physical market participants such as representatives of farmers, producers, processors, exporters, domain experts and other stakeholders. These advisory committees would advise the Government and the FMC on how to bring about better alignment between the physical markets and the futures market so that the farmers and hedgers are substantially benefited from the futures trading which is its primary purpose. An advisory committee has already been constituted to study various issues in rubber futures trading. (4) FMC has been asked to ascertain whether there have been attempts to hoard commodities to influence the futures markets and if so, how this activity is being financed. The FMC is an independent regulator. However, the Chairman, FMC keeps the Government fully informed of all the important developments in the market.
Earlier in the month, FMC decided not to allow the launch of soybean futures contracts scheduled to be launched in April 2012.
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