Panel recommends banks, financial institutions to join commodity futures trading
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New Delhi: A committee constituted by the finance ministry has recommended that banks, financial institutions and foreign financial firms be permitted to join commodity futures trading in order to widen participation.
The committee was constituted in December under the chairmanship of senior adviser in the finance ministry D.S. Kolamkar to suggest steps to fulfill the objectives of price-discovery and hedging in commodity futures market. The committee submitted the report in April.
“A number of policies and regulatory restrictions restrict banks and other financial institutions from participating in futures markets. 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 on the finance ministry website on Monday said.
The committee advocated that the government should stop suspending trading of commodities in an abrupt and unreasoned manner “in order to assist the development of organisational capability of firms” operating in the commodity futures ecosystem.
The committee also recommended that exchanges should explore the idea of extending trading hours that overlap with Asian and Australian markets to improve their competitiveness. Currently, trading hours in India overlap with those of the European markets but have little or no overlap with Australian and Asian markets which have a large trading base that has so far not been tapped.