Govt agencies get ready to join futures' club
MMTC, Nafed, Projects and Equipment Corporation (PEC) and Food Corporation of India (FCI) have all initiated the process to hedge their price risks on the commodity futures exchanges.
By Deepa Krishnan, TNN |
MUMBAI: Government agencies like Minerals and Metals Trading Corporation (MMTC), National Agricultural Co-operative Marketing Federation of India (Nafed), Projects and Equipment Corporation (PEC) and Food Corporation of India (FCI) have all initiated the process to hedge their price risks on the commodity futures exchanges.
The Centre has recently eased the importing norms on wheat, sugar and pulses to bridge the demand-supply gap and curtail rising prices. It is, however, not clear if the agencies would hedge immediately on these commodities, in the futures market.
MMTC has already become a member of the Multi Commodity Exchange (MCX) and will start trading in precious metals futures in a month’s time. “We are looking for some parity in the market before we start trading”, sources said. The company plans to hedge 5-7% of the risks,” they said. Besides gold and silver, the trading agency is also keen to start hedging on sugar, wheat and edible oils once the prices stabilise.
Nafed has also set up special teams to track the market, and is looking at a decentralised system of managing risks. Trading will take place regionally where different centres would hedge in different commodities. They are in favour of becoming members of local brokerages to conduct activities, and are currently evaluating them.
The Kochi and Kozikode offices of the procurement agency are already trading in the futures market for rubber and spices, sources in Nafed said. They have also set up desks in Indore, and Delhi out of where they would also trade in wheat, channa or chick peas and mustard seed.
The FCI is also understood to be toying with the idea of selling part of the goods it has procured through the futures market. However, many traders fear that the sheer scale of operations of a procurement agency like FCI could distort the market.
At a recent event in Mumbai, the secretary, department of consumer affairs L Mansingh had indicated that for an agency like FCI to participate, a separate set of regulations by market regulator Forward Markets Commission (FMC) would be needed to ensure that a single player does not dominate the market.
An official from the FMC said that currently these agencies can participate in the market like any other player and can increase their position two to three times over the stipulated limit on the open position, with the permission of the exchanges. “The exchange will have to conduct a strict scrutiny on the client before they are allowed to increase their positions above the limit and the FMC must be notified,” he said.
The Centre has recently eased the importing norms on wheat, sugar and pulses to bridge the demand-supply gap and curtail rising prices. It is, however, not clear if the agencies would hedge immediately on these commodities, in the futures market.
MMTC has already become a member of the Multi Commodity Exchange (MCX) and will start trading in precious metals futures in a month’s time. “We are looking for some parity in the market before we start trading”, sources said. The company plans to hedge 5-7% of the risks,” they said. Besides gold and silver, the trading agency is also keen to start hedging on sugar, wheat and edible oils once the prices stabilise.
Nafed has also set up special teams to track the market, and is looking at a decentralised system of managing risks. Trading will take place regionally where different centres would hedge in different commodities. They are in favour of becoming members of local brokerages to conduct activities, and are currently evaluating them.
The Kochi and Kozikode offices of the procurement agency are already trading in the futures market for rubber and spices, sources in Nafed said. They have also set up desks in Indore, and Delhi out of where they would also trade in wheat, channa or chick peas and mustard seed.
The FCI is also understood to be toying with the idea of selling part of the goods it has procured through the futures market. However, many traders fear that the sheer scale of operations of a procurement agency like FCI could distort the market.
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At a recent event in Mumbai, the secretary, department of consumer affairs L Mansingh had indicated that for an agency like FCI to participate, a separate set of regulations by market regulator Forward Markets Commission (FMC) would be needed to ensure that a single player does not dominate the market.
An official from the FMC said that currently these agencies can participate in the market like any other player and can increase their position two to three times over the stipulated limit on the open position, with the permission of the exchanges. “The exchange will have to conduct a strict scrutiny on the client before they are allowed to increase their positions above the limit and the FMC must be notified,” he said.
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