Forwards Market Commission seeks public comments on market making in commodity segment

MUMBAI: Commodity market regulator the Forwards Market Commission (FMC) has sought public comments for the introduction of liquidity enhancement scheme or market making in the commodity segment. FMC intends to introduce the scheme in low-liquid contracts, a release from the regulator said.

Though the FMC has till now not banned any commodity exchange from market making, there were no specific guidelines for it. In the equity market, the stock exchanges were allowed to launch liquidity enhancement scheme by the Securities and Exchange Board of India after guidelines were introduced.

Market making attracts broker and trader participation through incentives. The FMC has sought public comments in three weeks for framing norms for the liquidity enhancement scheme.

An FMC statement said that to bring in initial liquidity, there was a need to take certain specific efforts by the exchanges. Most of the agri-commodity contracts are illiquid in the commodity exchanges.

The FMC said a commodity exchange shall formulate its own benchmarks for selecting the commodities for liquidity enhancement with the broad objective of enhancing liquidity in illiquid commodity contracts. For the present, commodity futures in agricultural commodities having a daily turnover of .`100 crore and non-agricultural commodities having turnover of RsRs500 crore at the exchange shall be considered liquid for this purpose.

The FMC said there were numerous representations from hedgers and value chain participants that the existing position limits are small and affects liquidity and depth of the market.

It is only the base metals, bullion and oil and gas that are a charm for traders. India’s commodity market saw a head start in 2004 after Multi Commodity Exchange (MCX) was launched. Even today, MCX is the dominant exchange with majority of trades taking place on its platform, while several other exchanges have extremely low or no trading.