Commodity market regulator Forward Markets Commission has decided to exempt commodities kept in warehouses servicing commodity exchanges from the purview of stock holding limits imposed by State Governments. Warehouses exempted from stock limit under the Essential Commodities Act have to make available data on goods stored in the warehouse on a real-time basis. Whenever prices of a particular commodity increases in short span of time without any major reason, State Governments impose stock limits.
Last year, the commission made it mandatory for all commodity exchange-accredited warehouses to register with the Warehouse Development Regulatory Authority. Quoting from the Consumer Affairs Ministry notification, FMC said an advisory in this regard has also been issued to all the States. The exchange has long been arguing with the regulator and ministry that stocks stored in exchange-recognized warehouses plays an economic role in price discovery and cannot be compared with that of hoarding.
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. 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. It will also help restore volumes on the futures exchange that are on the downtrend since the government imposed commodity transaction tax last year. Anticipating clarity on warehouse stock limits to bring in volumes in long term, it would boost hedgers and traders confidence and bring them on the exchange platform over a period.