The suspension, which took effect on Monday, brings together existing positions on seven agricultural and food products, but no new futures trading is allowed for a year. It also means that commodity brokers will now have to primarily trade in metals and energy contracts.
The Ministry of Finance, in a communication to President de Sebi on December 19, ordered the regulator to suspend futures trading on the seven commodities. The move comes amid concerns over high food prices, which are at the heart of the country’s high inflation.
âSince inflationary concerns have built up in the economy, the government intends to balance its approach towards consumer inflation, also keeping in mind aspects of economic growth,â Naveen said. Mathur, Director, Commodities and Currencies, Anand Rathi Share and Stock Brokers. âPrices for oilseeds and edible complexes have reached all-time highs in recent months. These products are consumed by households and actors in the value chain such as processors, millers, stockists, etc.
Prices have recently fallen due to measures taken by the government, including cuts in import tariffs, he said. Increased oilseed production in India and elsewhere also contributed to lower prices.
Following the Sebi directive, the country’s main commodity exchanges, MCX and NCDEX, told their members that they had suspended new positions on the seven commodities, including crude palm oil and non-basmati paddy.
Sebi had previously suspended the chana and mustard seed futures. Monday’s order extends their ban until next December.
“No new contracts will be launched until new orders,” Sebi said in a statement.
The Reserve Bank of India (RBI) has projected consumer inflation at 5.3% for the current fiscal year. In the first half of the next fiscal year, it is set at 5%, one percentage point above the target of 4%, although a band of two percentage points on either side is allowed. Central banks around the world are focusing on inflation, with U.S. Federal Reserve Chairman Jerome Powell planning to step up to cut bond purchases and raise interest rates to control prices.
“The (Indian) government believes that commodity derivatives lead to high food prices and therefore to the decision to suspend futures trading in agricultural products,” said a commodity exchange official.
Existing futures are a good indicator of the actual demand and supply situation for these commodities and therefore Sebi’s decision, market participants said.
Monday’s suspension âwill dry up space. It will also deter new entrants such as hedge funds, mutual funds and bank subsidiaries, as they will shy away from the commodities space if such a suspension occurs, âthe person said. âPreviously there was a brutal ban on trade in raw materials. But now, they just stop new positions and allow the reconciliation of existing positions. ”
Finding out the prices of agricultural products is essential, he added.
Companies have sought to hedge price risk on the exchanges through derivatives of oilseeds and edible oils, especially in the current volatile market scenario.
“These actions have an impact on the feelings of market participants,” said Mathur d’Anand Rathi. âOilseeds and edible oils make up a significant portion of the trade volume, and therefore any political action can impact the trade volume of trade. These commodities are internationally linked and have high liquidity and open interest. ”
Interest opened on December 17 in refined soybean oil stood at around Rs 650 crore on NCDEX. As for soybeans, open interest was around Rs 600 crore, and this crude palm oil on the MCX was around Rs 800 crore.