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FMC likely to allow soon higher quantity futures in metals, farm commodities

26 Feb 2014 Evaluate

Commodity market regulator Forward Markets Commission (FMC) is likely to allow higher quantity futures in gold, silver, as well as farm products such as soyabean and wheat. The FMC has discussed with leading bourses like MCX and NCDEX a doubling of exposure limits in these commodities.

The regulator, in order to increase the trade volume on bourses and has been tinkering with norms as giving exchanges the freedom to fix turnover charges for brokers, from the floor of Rs 1 per lakh earlier. During the first 10 months of current fiscal, the trade volume on exchanges has declined by 40 percent to Rs 80 lakh crore from a year earlier after the government introduced a Rs 10 per lakh transaction tax on sellers of non-farm and processed farm futures contracts. Moreover, Rs 5,600 crore scam on commodity spot exchange NSEL eroded the investors’ confidence further. Furthermore, liquidity in gold on metals and energy bourse MCX has declined after government raised import duty on the metal to 10 per cent in a year to contain the widening India’s current account deficit (CAD).

Meanwhile, with the FMC's latest move, hedgers and large speculators in commodity futures contracts would get to trade greater quantities of gold, silver, soyabean and wheat. However, it is expected that the move alone may not help deepen the market due to the absence of substantial two-way liquidity (both buy and sell sides) in many contracts, restricting participants to raise their stakes on leading bourses like MCX and NCDEX exchanges.

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