B C Khatua, the new chairman of India's apex commodity markets regulator Forward Markets Commission has strong views on how the futures market should function in the country.
Khatua spelt out his vision during his first press conference in Mumbai on Tuesday.
Read what the new FMC chairman has to say on key issues facing the commodity futures market in India.
On hedgers and speculators
Hedgers and speculators are essential for the efficient functioning of the futures market. Fundamentals of supply and demand do not impact the futures market as much as a lack of balance between the hedgers and speculators. Participation of actual users and hedgers is important for the healthy growth of the futures market. The criticism that the future's trade is solely driven by speculation is not correct. There is regulatory mechanism in place to keep speculation under check.
On delivery of futures contracts
The delivery of the futures contract ensures that the prices in the futures exchanges are in sync with spot prices. In agricultural commodities, the delivery option is largely either a sellers option or compulsory delivery. The regulator would like the delivery process to be smooth and expects contracts to be broad enough so that they are not susceptible to manipulation.
On the issue of constant regulatory interventions
Even in mature markets you have scandals. Yet the investor confidence has been maintained. Nobody can guarantee that there will not be mischief-makers. What is important is how swiftly and transparently you tackle them and bring them to books.
Is futures market responsible for price rise and inflation?
The demand-supply gap is what caused the rise in commodity prices and the futures markets is only an indicator of the situation.
Challenges for futures markets
More participants, especially from the agriculture sector, should use futures market. Small farmers can form groups, informal associations, co-operatives and NGOs, and participate in the market.
On regulatory framework changes
The existing laws should ensure that the basic objective of permitting commodity trading-- price discovery and risk management-- are fully met. The government is considering the amendments to the Forwards Contracts (Regulations) Act, 1952, (FRCA). The FCRA amendments would empower FMC for better and more effective regulation of the commodity markets. The laws will ensure that the price signals emanating from the commodity exchanges reflect the actual demand and supply scenario and are free from any manipulations.
