The Hindu Business Line : `FIIs, mutual funds will aid futures trade'

FUTURES ISSUE: Mr S. Sundareshan (right), Chairman, Forward Markets Commission, addressing a commodities roundtable conference along with Mr Labanyendu Mansingh, Secretary, Department of Consumer Affairs, Ministry of Consumer Affairs, in Mumbai on Wednesday. — Paul Noronha

Mumbai , June 28

Foreign institutional investors and mutual funds' participation in commodity futures would lend depth and liquidity to the trade, Mr S. Sundareshan, Chairman, Forward Markets Commission (FMC), has said.

He reiterated that FMC had no intention to get into a whole new set of regulatory mechanisms, as FIIs and MFs are regulated by SEBI and partly by the Reserve Bank of India.

Once the Forward Contracts Regulations Act is amended, participation of FIIs and MFs in futures trade would be allowed. The Act is expected to be passed in the monsoon session of Parliament.

Banks, according to Mr Sundareshan, would be playing a much larger role than that of FIIs and MFs. Banks would be the credit provider to farmers through exchanges.

He also pointed out that the recent rise in commodity prices was on account of larger factors and not caused by the futures market.

ECA amendment

The Ministry of Consumer Affairs has moved an amendment to the Essential Commodities Act (ECA).

The amendment, which has been agreed upon by the Parliamentary Committee of the Ministry, says the Act is to be invoked only in emergency situations like war or natural calamities with a sunset clause limiting the ECA imposition for six months, Mr Labanyendu Mansingh, Secretary, Department of Consumer Affairs, Ministry of Consumer Affairs, said.

On Food Corporation of India (FCI) participating in futures, Mr Mansingh said the regulator would have look at a separate regulations for such an organisation as it is a big player.

"The scale of operations of FCI is very large. I don't think FCI would be keen to enter now as trades are small," he said.

Reports have been suggesting that organisations like FCI and Nafed (National Agricultural Co-operative Marketing Federation) should buy on the futures market on a regular basis to take care of contingencies. He also noted that HAFED of Haryana has become a member of NCDEX.

"There is no reason why FCI should not participate in commodity futures eventually," he said. The entry of FCI may become possible when futures trade is opened up for FIIs and MFs.

Warning

The Forward Markets Commission (FMC), sole regulator for commodities markets, has said it will deal `sternly' with any person or organisation found spreading rumours in the markets.

It said Section 21(g) of the Forward Contracts (Regulation) Act, 1952 identified such an activity as punishable offence.

"It has come to our notice that some unscrupulous operators are spreading rumours in the markets," FMC said in a news release.

FMC denied all rumours relating to closure of futures trade in some of the agri commodities.