ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Commodity Futures Trading

I have read with considerable interest Tulsi Lingareddy’s article “Commodity Futures Trading at the Crossroads” (EPW, 13 June 2015). The author seeks, amid others, “to analyse issues related to the functioning of Indian commodity markets in view of the prospective FMC–SEBI merger.” “Further, in...

Commodity Transaction Tax: A Recipe for Disaster

The commodity transaction tax announced in the 2008 Union Budget will prove counterproductive for it will provide little revenue for the government and at the same time, unsettle the commodity derivative market.

More on Futures Trading and Commodity Prices

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.

Futures and Prices

Letters Futures and Prices T his refers to your editorial on essential commodities (August 19, 2006). You surprisingly attribute the recent rise in the prices of essential commodities to the speculative propensity of the large trading firms and the consequent huge volume of trading on commodity...

Options Trading in Commodities

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.

Warehouse Financing: Short on Logic and Long on Imagination

The attempt by the RBI to promote warehouse financing for agricultural commodities is undoubtedly a welcome move. The major problem, however, is that the country lacks modern warehouses. It would have been much better if the RBI-constituted Working Group on Warehouse Receipts and Commodity Futures had drawn up a road map to develop the warehouse receipt system for bank financing against agricultural commodities.

IPR in Commodity Futures Contracts

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.

Perils of Dematerialisation of Commodity Futures

At present the perils of dematerialisation of commodity futures deliveries far outweigh their apparent benefits. However attractive the demat system may seem at first sight, its introduction in India must await a revolution in our agricultural economy to usher in uniform standards in crop varieties and their production, packing or bailing and their storage, and, above all, in physical market trading practices. These dreams are still miles away.

Death Trap for Commodity Futures

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

Commodity Exchanges Are Not Stock Exchanges

Commodity exchanges have adopted wholesale the business and regulatory models of the country's stock exchanges. However, as the two are completely different in nature and functions, this has created numerous impediments, rendering the new exchanges rather ineffective in their main economic functions of price discovery and risk management. It is necessary to put in place practices and policies uniquely suitable for India's commodity exchanges in order to make them globally competitive.
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