MUMBAI, MAY 8: A day after the government banned futures trading in four commodities, the Forward Market Commission (FMC), the body that regulates the country’s commodity markets, said that the move is “not the right step” as “high inflation is a physical market problem and has nothing to do with the futures market”. “The ban will hurt trading on the NCDEX, NMCE and MCX. This will only satisfy the unjustified perceptions of people who wanted a ban,” FMC chairman B C Khatua told The Indian Express. The ban on chana, soya oil, potato and rubber will affect volumes by about Rs 1,000 crore per day on the exchanges, the commodity exchanges said today.

“During the monsoon season, construction work will see a slowdown, thereby leading to a fall in cement and metal prices. Against that background, the ban is not the right step,” says Khatua. “ It will not even help farmers, who stand to gain by better price realisation on the back of futures contracts trading,” he added. While turnover at the Multi Commodity Exchange is expected to fall by about Rs 200-300 crore, the National Commodity and Derivative Exchange (NCDEX) will suffer a volume loss of Rs 500 crore, officials of the top two commodity exchanges said. The exchanges have a combined daily volume of around Rs 16,000 crore. The government move will halt trading on the National Board of Trade, the Indore-based exchange that trades only in soya products, which clocks a volume of Rs 100-150 crore.

“Chana and soya contribute to 20 per cent of the trading volume of NCDEX. It is definitely an issue of concern for us and we are looking at options to make good the volume loss,” said NCDEX CEO R Ramaseshan. The market sentiment will see a far greater dent, let alone the loss in volumes, say experts. Chana and soya make up for around 30 per cent of total trade on the bourses.

“In the last 60 years, the government had never envisaged foreign currency futures but as volatility was observed in foreign currency, it was allowed to be traded. Similarly, in today’s time, the industry is seeing a great price volatility in commodities and it defies any logic as to why the government has different policies for currency and commodities,” said MCX managing director Joseph Massey. “The market had taken a jolt earlier this year with introduction of the the commodity transaction tax (CTT). This will be another impediment to the growth of exchanges,” said Angel Commodities Broking head of research Naveen Mathur.

Future Imperfect?

•Commodity exchanges criticise move

•Forecast fall in volumes

•Futures trading benefits farmers, says FMC chief