FMC restricts futures trading in potato to check prices

19 Jun 2014

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The Forward Markets Commission (FMC) has barred commodity traders from taking positions in potato contracts for July, August and September, in order to arrest the trend of rising prices.

The commodity markets regulator also hiked deposit amount on buyers in the backdrop of rising prices of potato and other essential commodities, which could be aggravated by the likelihood of a sub-normal monsoon.

Following the FMC's directive, MCX, the country's main commodity bourse, issued a circular disallowing fresh positions in potato contracts for July, August and September effective 18 June.

Simultaneously, MCX also hiked the margin money for buyers from 5 per cent to 30 per cent of the value of the commodity.

At present, potato is actively traded only on the MCX and to a lesser extent on the NCDEX.

"Further, 25 per cent special margin (cash) shall be imposed on long (buy) side for all contracts of potato with effect from 23 June," the exchange said in a circular.

Potato prices for June contract on the MCX are ruling at Rs1,270 per quintal, against Rs945 per quintal in January. Trading volumes in June contract stood at 3.2 lakh tonnes last month.

FMC chairman Ramesh Abhishek said, ''The decision is based on the commission contract monitoring system, which suggested that in potato contracts in the past three months, there was no delivery, price movement was one-sided and participation was much lower, warranting some action.''

Spot prices of potato have risen 53 per cent over the past 10 weeks.

Following the clamp down potato futures prices on the MCX in all four contracts was down to the four per cent lower circuit. Hardly 40 traders were participating and against 40,000 tonnes of open interest, the stock in exchange-accredited warehouses was 2,000 tonnes.

FMC is reported to have asked MCX to check the source of funds of the top 10 clients and to find out if traders against whom some action was taken in the past had traded in other names.

The consumer affairs ministry has been against futures trading in essential commodities without a strong regulatory framework although there is no proposal to delist futures trading in essential commodities.

Officials said the matter was also not discussed in Tuesday's meeting on food inflation called by finance minister Arun Jaitley.

A report prepared by a committee of chief ministers headed by Narendra Modi, now the prime minister had, in 2011, suggested a temporary suspension of futures trading in essential commodities.

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