Derivative trade in 7 agriculture commodities banned

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The Securities and Exchange Board of India (Sebi) on Monday banned the derivative trade of seven agriculture commodities on the future’s platform of National Commodities and Derivatives Exchange (NCDEX) for a year.

The regulator has banned derivative contracts trade in chana, wheat, paddy (non-basmati), soyabean and its derivatives, mustard seed and its derivatives, crude palm oil and moong for a year with immediate effect. “No new contract shall be launched till further orders. In respect of running contracts, no new position will be allowed to be taken. Only squaring up of position will be allowed,” Sebi said on Monday. Sebi had earlier banned chana and mustard seed derivative trade on August 16 and October 8 respectively.

Most traders, who spoke to The Indian Express said this decision was taken to cool off food inflation before the elections to the five states including Uttar Pradesh.

On the NCDEX’s trading platform, buyers and sellers could put commodities on sales which were to be closed at a “Future’s” date. In case either the buyer or seller refused to honour these contracts, they could exit the same by paying a small fee. Future’s contracts gave a reasonably accurate information about price trends for the commodities trade and acted as a guide for hedging. However, complains of speculative trade had rocked the market which had led to many trade organizations asking for a ban on them.

While chana (Bengal Gram) has been off the list for the last three months, inclusion of rabi crops like wheat, mustard and moong has raised eyebrows in the trade circuits.

Some traders from Latur opined this decision shows nervousness in the policy circles about rabi output in view of the fertilizer shortage faced in many parts of the country. By banning future’s trade, the government is trying to insulate any price shock the market might feel in the days to come in case the production is not up to par.

Soyabean has been on the radar for the constant price rise the commodity has seen over the year and so. Poultry industry had made repeated demand for ban on future’s contract on the oilseed which they said was cornered by speculators. In fact, Rajasthan Khadya Padarth Vyapar Sangh hailed the decision in a press statement. “This will free the kitchen from the clutches of speculators,” the statement read.

Traders and processors said the physical markets would follow the fundamentals of supply and demand.

However, most traders felt this move was regressive and took the fledgling trade in commodities markets years back. This decision, many felt, took off the only indicators which the trade and farmers had about future price trends. Vilas Uphade, director of Latur based Vikas Farmers Producer Company (FPC), said the futures market had guided farmers on their sales techniques and was followed by many.