Forward market regulator to decide on fourth exchange

28 Nov 2007

1

Chennai: Is there a need for a fourth commodity exchange in India? The need is being studied by the Forward Markets Commission (FMC) after Indiabulls Financial Services and MMTC combine have applied for permission to set up a commodity futures exchange. As of now, there are three commodity exchanges in the country viz National Commodity & Derivatives Exchange Limited, Multi Commodity Exchange of India Limited and National Multi Commodity Exchange of India Limited.

BC Khautua, chairman, Forward Markets Commission, said, "We are studying whether there is space for additional commodity futures exchanges. We are also studying various aspects of a broking firm promoting a commodity futures exchange. A decision on these is yet to be taken." According to Khautua, the commodities market is in a transition phase with lots of issues and suggestions being discussed.

The FMC is considering different options to bring the farming community into the trading net. To bring convergence of prices in the physical market and the futures market the farming community-the holders of physical commodity- should be brought into the exchange. "Only then they will be able to discover better price for their produce. If physical delivery of goods happen then the future''s market would be stable," he adds. 

"The farmers can form a cooperative society which in turn could participate in the commodity futures market. As a society the farmers can pool higher volume than as an individual farmer," Khautua remarks. In order to spread the message of commodity futures exchange among the farmers, FMC will first take the leaders in the farming community into confidence.

According to Khautua, FMC is alive to the issue of grading of the commodities and the quality tendered for delivery. "There is an urgent need for commodity grading and certifying labs. Once that happens commodities could be traded and transferred based on the warehouse receipt."

There is a similar need for grading and certifying chemicals that are being traded in the commodity exchanges. On the entry of foreign players in the exchange, he said, "International players are present in the physical market already and they should also be allowed in the futures market." "As the Indian commodity futures are in a nascent stage they should be allowed only to hedge," he added.

On the issue of foreign direct investment (FDI), he says the decision is to be taken by the government, adding that permitting FDI will be beneficial for the market as it would mature fast.

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