MUMBAI Indian commodity markets regulator wants to re-list the banned guar futures, and will decide the timing by the end of July, after getting a clear picture on planting of the summer sown crop, a move seen helping battered investor confidence.
Future contracts of guar, the gum of which is used in food manufacturing and increasingly in the oil and gas industry, were banned in March after prices soared more than tenfold last year, caused by excessive speculation, denting the reliability of the commodity markets to provide a safe hedging and price discovery mechanism.
"We will allow guar contracts after sowing is done... we will wait for sowing at least there will be supply related information for the market. We will take a call by end of July," Ramesh Abhishek, chairman of the Forward Markets Commission told Reuters in an interview.
The early sowing indications point towards higher acreage than last year, though progress of monsoon rains in northern India will determine the extent of the rise.
The futures trading ban will continue on rice, tur or pigeon peas and urad or black gram, which were banned in 2007, he said.
To broaden the market participation, the regulator has recommended the entry of banks in the futures markets to the federal government, which is pending approval from the finance ministry.
"When there will be more institutional participation in the futures market, then the real impact will be felt in terms of liquidity... that will be more of clinching kind of change," Abhishek said.
The markets regulator has also asked for 51 percent foreign investment in commodity brokerages.
Currently, foreign brokers and investors are not allowed in commodity markets in India, the largest buyer of bullion and second biggest producer of wheat, rice, cotton and sugar.
Foreigners are allowed to take exposure to these markets via commodity exchanges. NYSE Euronext, Merrill Lynch Holdings and Fidelity International have about 5 percent each in the Multi Commodity Exchange, the country's biggest in terms of turnover.
The regulator plans to take a series of measures to boost confidence of participants and prospective clients, who were on the sidelines, waiting for clarity.
The regulator has asked exchanges to make information public on top positions in every contract, highest open interest, deliveries among others. The exchanges will have to settle accounts with clients once every quarter from July onwards.
The regulator also plans to set up an investor protection fund, with a corpus of 600 million rupees collected from penalties and other levies, to compensate clients, who have suffered due to member defaults.
"Our focus is to improve transparency of the market and to have better alignment with the physical market... many of the steps have been undertaken to bring this alignment," Abhishek said.
The exchanges have undertaken the role facilitating aggregators to encourage the participation of hedgers and farmers, who due to marginal land holding fail to gain from futures market.
"The farmers need aggregators to participate in the market... small and marginal farmers, who constitute 85 percent, can't participate directly," said Abhishek, adding he hoped to see each exchange facilitating at least a couple of aggregators in the next few months.
Most of the rubber producers in Kerala state, the country's biggest producer, hedge their price risk on futures market through co-operatives, but in case of other key commodities no such mechanism is available.
"All this transparency and investor protection measures etc will boost confidence of clients and potential clients to participate in the market in a big way," Abhishek said. "More transparency is the name of the game." (Editing by James Jukwey)
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