India’s commodity regulator the Forward Markets Commission (FMC) initially banned trading back in March to curb price volatility and speculation. But following an Advisory Committee meeting on October 16 it made a recommendation to relist guar gum and guar seed on the futures market.
Indian industry advocacy group ASSOCHAM has opposed this recommendation.
It said relisting should not take place until the FMC gains power to regulate the market and penalize any insider trading, cartelization and price manipulations under the Forward Contract Regulation Amendment (FCRA) Bill; cleared by the Cabinet on October 4.
Fair trading questionable
Reasons for price volatility prior to the trading ban were questionable, ASSOCHAM said. “There is a possibility of price manipulation and insider trading as price, due to lack of corresponding trading volumes and negligible open interest in the market.”
“During 2011-12, there has been absolute mismatch in the prices, trading volumes and trading patterns, which needs to be further investigated,” it continued.
Market regulation must be implemented, says ASSOCHAM
ASSOCHAM said well-organized spot markets need to be developed to ensure transparent and efficient trading and warehousing testing labs and other eco-system linkages must be established to guarantee quality of goods.
Institutional investors’ participation must also be allowed to achieve higher trading liquidity, it said.
“The FMC must come out with a long term investor education strategy. Investor education is the best way to empower investors and hence the issue needs special attention. A well informed investor’s base shall create greater trading liquidity and help in avoiding price manipulations.”