Mumbai: India’s commodity futures market regulator has recommended that foreign brokers should be allowed to trade in derivatives, and said a ban on rice futures is being reviewed as the supply scenario is now comfortable.
“We have written to (government) to allow foreign brokers in commodity futures trade,” B.C Khatua, chairman, Forward Markets Commission told Reuters in an interview.
India’s commodities exchanges, launched seven years ago, have grown rapidly and clocked a turnover of Rs77.65 trillion ($1.74 trillion) in the year to March 2010, and the entry of foreign brokers would further develop the market.
“Entry of foreign brokers will bring better practices and help in growth of the market. Commodity is a valid asset like equity and should get at par treatment,” Khatua said.
Officials at the federal trade and industry ministry had studied the regulator’s proposal and forwarded it to the finance ministry, two top regulatory officials and an executive at a large brokerage said.
India currently doesn’t allow foreign brokers, banks and funds in commodities futures trade.
Khatua said entry of foreign funds and banks in the domestic commodity derivatives trade should be allowed only after the regulator is strengthened after the Forward Contracts (Regulation) Amendment Bill 2006, is approved by parliament.
The bill seeks to give more teeth to the regulator and allow trade in indices, options, instruments like weather derivatives.
“There has been a collective thinking about the need of strengthening the regulator ....the bill may be taken for discussion in the monsoon session (of Parliament),” he said.
The proposed law would bring the commodities regulatory body, currently controlled by the federal government, on a par with the autonomous stock market regulator.
The government may lift a ban on rice futures, which was enforced three years ago under pressure from a leftist coalition allies who also persuaded the government to disallow futures trade in wheat and two varieties of lentils.
He said the government had built comfortable stocks despite a drop in output last year and prices had been stable for months.
India’s rice stock on 1 April was at 26.7 million tonnes, more than double the target of 12.2 million tonnes. “Rice makes case for a comeback.. we are considering.”
Last year, India allowed futures trade in wheat after nearly two years, but then suspended sugar contracts.
Khatua said hopes of a rebound in India’s sugar output and falling prices has created an environment conducive to re-launch of sugar futures, but the ban would be reviewed only after watching the progress of the June-September monsoon rains, which are vital for the cane crop.
“Demand-supply scenarios are more or less in equilibrium than they were three months back. In January prices peaked, but now they are steadily coming down, he said.
The price of sugar in Maharashtra has fallen by about a third to Rs2,700 per 100 kg since hitting a record high of Rs3,972.3 on 7 January.
“We will take a call in September by which time we will get a clear picture about acreage, and how the monsoon has behaved, he said,” he said.