Commodity players seek reforms, market depth

MUMBAI (Reuters) - Indian commodity futures traders are seeking permission for foreign funds and banks to invest in the market and more powers to the regulator to boost trade and protect investors, industry players said.

India's six-year old commodity futures market which traded worth 52.49 trillion rupees in 2008/09, doesn't allow banks, mutual fund and foreign institutional investors, unlike equity and debt markets.

"On participation side we need participation from banks, mutual fund and foreign institutional investors," said Dilip Bhatia, director, Kotak Commodity Services Ltd.

"I expect some amendment in the Banking Regulation Act, where the commodities could be a permissible activity under section 6," he added.

More funds into the market and investor-driven activity will help curb speculation, and improve price discovery, traders say.

"This will ensure better depth and diverse participation... foreign investors and banks have immense interest in commodity trading ..they already hold stakes in many exchanges," said a senior official with a commodity exchange.

Biggest bourse Multi-Commodity Exchange (MCX), part-owned by Fid Fund (Mauritius) Ltd. -- an affiliate of Fidelity International -- and NYSE Euronext, while rival National Commodity and Derivatives Exchange (NCDEX) is part-owned by Goldman Sachs.

According to the Futures Industry Association, MCX, NCDEX are ranked 22nd and 34th respectively among top derivatives exchanges in the world.

Industry players are also hoping that proposed trade curb in the form of commodity transaction tax (CTT), in last year's budget, may be repealed. Regulator Forwards Markets Commission has appealed against it, an official said.