Goods stored in warehouses of commodity exchanges exempt from stock limit

Commodity market regulator Forward Markets Commission (FMC) has exempted goods stored in the warehouses servicing commodity exchanges from the purview of stock holding limits imposed by state governments under the Essential Commodities Act.

This was one of the key reforms that the commodity markets regulator has been pushing with the consumer affairs ministry for last few years.

"Department of consumer affairs has informed that the commodities kept in regulated warehouse (registered by the Warehousing Development and Regulatory Authority) have been exempted from stock holding limits under the Essential Commodity Act, 1955," FMC said in a release.

Such exempted warehouses, however, have to make available data on goods stored in the warehouse on a real-time basis, it said.

State governments impose stock limits whenever prices of a particular commodity spurt in short span of time without any major reason.

Last year, the commission made it mandatory for all commodity exchange-accredited warehouses to register with the Warehouse Development Regulatory Authority.

The FMC order has bought in much-needed clarity and may bring back investors who were keeping away from the futures market for fear of a raid, Samir Shah, managing director of National Commodity and Derivatives Exchange, said.

''The stock limits imposed by State Governments often interfered in the price discovery process and posed a hurdle in convergence of spot and future prices,'' Shah said.

Shah said the exchange has long been arguing with the regulator and ministry that stocks stored in exchange-recognised warehouses play an economic role in price discovery and cannot be compared with that of hoarding.

The government's move will also help resurrect volumes on the futures exchange that are on the downtrend since the government imposed commodity transaction tax last year.