Commodity derivatives markets started in India in 1990s, The National Agriculture Policy, announced by the government in 2000, advocated the development of futures markets so that consumers and producers of commodities could use these contracts to procure commodities at a more rational price than at the Minimum Support Price (MSP) set by the government, which came with a large cost to the exchequer. This set in place a drive of reforms in these markets, following the reform model that had lead to the development of the Indian equity markets previously.
In 2003 commodity futures contracts started trading on electronic exchanges with a nation-wide reach. Counterparty credit risk, that was a serious problem in the older exchanges, was eliminated using netting by novation at clearing houses similar to their more visible equity derivatives cousins. Total traded Continue reading “Commodity Futures need revolution in India”
Across the world we have seen the unification of trading in all kinds of products — spot or derivatives, equities or currencies or fixed income or commodities etc., OTC or exchange. It makes too much sense to reap economies of scale and economies of scope, both in the private sector and in the work of regulation and supervision. The arrangement in India, where the Forward Contracts Regulation Act (1952) envisages the Forward Markets Commission that is a part of the Department of Consumer Affairs, is a silly one.
Everything we have learned about how to run the equity market is valuable for commodity futures:
- The regulatory governance process at SEBI including authority to issue regulations, enforcement process, appeals at SAT, etc.
- Governance problems of Infrastructure Institutions with three-way separation between shareholders, managers and trading members.
- Netting by novation at the clearing corporation.
- Not having `badla’ trading. Continue reading “The Commodity Futures is under Ministry of Finance”
What happened on the NSEL (National Spot Exchange Ltd) recently is system failure or is it a scam. Lets try to analyse the case as you know National Spot Exchange suspended trading in most of its contracts and deferred payouts to its members, triggering fears of a default.At the onset it looks like the liquidity issue.
So what really has happened NSEL, a spot commodity exchange promoted by Financial Technologies, introduced products with characteristics that purportedly violated the norms governing such exchanges.
NSEL launched contracts with more than 11 days tenure, while spot exchanges are not allowed to offer such contracts. The exchange also reportedly allowed members to do short selling, which is not permitted on spot exchanges, where delivery of the commodity traded is mandatory. Continue reading “Commodity futures Trading, Just a game of speculation in India”