Articles by Madhoo Pavaskar

This article critiques 'Impact of Futures Trading on Commodity Prices' by Golaka C Nath and Tulsi Lingareddy, pointing out theoretical and econometric flaws in addition to fallacies about volatility.

From the Shroff Committee in the early 1950s to the World Bank-UNCTAD team in the late 1990s, the introduction of options trading in commodities has been opposed. The Kabra Committee was the lone exception in this regard but it offered no line of reasoning for its recommendations. An amendment to the Forward Contracts Regulation Act to remove the ban on options is already on the cards. With widespread unlawful options in commodities, there seems no earthly reason to continue the ban on them any more.

The argument that granting intellectual property rights for a contract design in a specified commodity prevents healthy competition among different exchanges and instead creates monopolies, holds little water. Competition is needed in a futures market but to create healthy liquidity, facilitate orderly hedging and price making, and not between different exchanges for organising futures business in the same commodity contract. Not only does liquidity tend to become fractured in the latter case, research and development of new commodity products may come to a halt for fear that others would copy the products of successful exchanges without any costs.

A government task force recommendation to integrate the securities and commodity futures markets will, if implemented, sound the death knell of the latter.