Keep foreign players out of futures for now: House panel

NEW DELHI: A parliamentary standing committee has recommended keeping foreign intermediaries out of futures trading in commodities for now as well as increasing the penalty for offences to more than Rs 25 lakh as laid down in the proposed law.

In its report, tabled in Parliament this week, the food standing committee on the Forward Contracts (Regulation) Amendment Bill 2006 also suggested that no new derivatives be introduced in the commodity markets, seen as highly volatile and susceptible to speculative pressures.

How seriously does the government take the suggestions in the course of the bill’s passage? Well-placed ministry sources told ET that while there was “no question” of banning forward trading since it allowed real price discovery, the panel’s other key suggestions would be “considered.”

The recommendation on removing minimum limits in the futures market to allow increased participation by small and marginal farmers, for instance, could help the Centre win brownie points with the rural lobby. Alternatively, sources said, rules could be framed to make it easier for farmers from a single village to corporatise themselves to enable them to trade in commodities.

Clause 21 of the amendments proposed by the government to the 2006 Bill propose the conditional registration of foreign participants and foreign intermediaries. On this, the panel has noted that while it is not averse to this, the Indian market is not sufficiently “orderly, mature or vibrant” enough to face the challenges and competition that would be triggered, specially since forward contracts have only been permitted recently.

“The time is not ripe to allow foreign participants/intermediaries in the commodity market,” the panel says, pointing to the lack of a debate as yet on this in Parliament and the lack of clarity in the Statement of Objects for the Bill.

In a concerted bid to deter all speculative trading, Clause 25 of the Bill proposes to amend Section 20 of the Principal Act, which provides for a punishment on conviction, hiking the current penalty of Rs 1,000 to Rs 25,000, up to a maximum of Rs 25 lakh. The panel has proposed that the fine should be “in proportion” to the gain earned by the offender or Rs 25 lakh, whichever is more.

The panel has also rejected the proposal under Clause 35 of the Bill to exempt the FMC from wealth tax and income tax or any other tax in respect of income, profits or gains, particularly against its 375% growth in the last two years and transactions worth Rs 22 lakh crore.

The panel has also suggested a separate appellate tribunal, which would settle cases in three months. The bill had recommended that an appellate tribunal be constituted under the Sebi Act.

The panel has also recommended Consitutional amendments to place both spot and futures trading under the same regulatory board, removing existing anomalies that allow regulation of spot trading under the State’s APMC while stock exchanges and futures markets are under the Union List in Schedule VII of the Constitution of India.