Significant drop in agri-commodity futures volatility, says FMC chief

The Forward Markets Commission (FMC) claims that volatility in the futures trading of agriculture products has come down significantly.

Meanwhile the commodity market’s regulator hopes that the consideration and passage of the Forward Contract Regulation (Amendment) Bill by Parliament will provide higher comfort level to the investors.

The Cabinet, on Thursday, approved official amendments to the Bill.

FMC Chairman Ramesh Abhishek told

Business Line , “Once the Bill becomes a law, it will give higher confidence to the regulators by gaining strength. At the same time, this will facilitate introduction of newer products such as options and index-based derivative instruments.”

Banks, FIs’ entry

Although there is no mention about banks and other financial institutions’ entry into commodity market, the thinking is that once the FCRA Bill is approved, they will be permitted. Abhishek also felt that once banks, along with other financial institutions, are allowed to enter commodity trading, it will increase liquidity.

The department related Parliamentary Standing Committee, after examining the Bill, has recommend that banks, insurance companies and mutual funds, etc should be allowed to participate in the commodity markets in the larger interest of the farmer community, which not only will provide more liquidity to the markets but also provide better price discovery and lower volatility.

There is no legal restriction or any bar on banks, financial institutions and mutual funds to be a commodity market participant so far the Forward Contract Regulation Act is concerned.

These financial institutions have their own regulators/controllers and they have to take permission from their controllers/regulators who will decide on the pros and cons of the investment to be made by these financial institutions before they are given permission to join/invest in futures markets.

Latest market situation

Giving an update on the market, Abhishek said, “Not only has volatility come down, there has hardly been any complaint related with agriculture products for the last 4-5 months.”

Here reasons could be attributed to change in fundamental, demand-supply situation and action by the regulators in terms of higher margin.

Advisory Committee

FMC’s advisory committee is meeting on October 16 to discuss various new measures such as increasing trading through ‘market making’ in narrow or illiquid commodities such as aircraft fuel (ATF), gasoline (petrol), heating oil, imported thermal coal, platinum, soyameal, rubber, RBD palmolein, gur (jaggery), polymers besides others.

The committee will also take a view on resuming contract in guar gum/seeds.

> Shishir.Sinha@thehindu.co.in