MUMBAI : A government panel on commodity futures market, in its report to the finance ministry, has strongly urged permitting banks in Indian commodity futures market and also recommended stopping abrupt suspension of futures trade.
The recommendations contained in “Report of the Committee to suggest steps to fulfil the objectives of Price Discovery and Hedging in Commodity Futures Market” also asked the Forward Markets Commission to take steps for increasing the liquidity, depth and widening of the futures market. “Transactions costs on the futures market are an impediment to arbitrage. FMC should pursue a programme of market development, including promoting a diverse array of firms as members in order to improve market liquidity,” the panel said.
Restrictions on banks under the Banking Regulation Act and other RBI regulated entities need to be removed so as to deepen and widen the participation in these markets, the report said.
Foreign financial firms, including intermediaries and end-users should also be permitted in Indian commodity futures trade as existing open interest and risk management norms would provide adequate safeguards against the risk of foreign participation, the panel said.
The panel also recommended finance ministry’s engagement with the warehousing development regulator and department of foods in setting up high quality warehouses, negotiability of warehouse receipts and sport market trading in warehouse receipts.
The panel recommended that exchanges should explore the idea of extending trade hours that overlap with Asian and Australian markets to improve their global competitiveness as these markets are important trading bases that have been hitherto untapped.
Currently, Indian trading hours overlap with the European markets.
The panel recommended bigger role for Forward Markets Commission.
“FMC should voluntarily adopt the regulatory governance of the draft Indian Financial Code, so as to reduce legal and regulatory risk in the eyes of financial firms, and thus assist the development of organisational capability in financial firms,” the report noted. FMC should focus on frequently reviewing contract designs to ensure it reflects the spot market realities, and provide effective hedging opportunities to participants. -Cogencis